4.170 The European Communities considers that Sections
771(35)(A) and (B), 731 and 777A(d) of the Tariff Act, as they operate in
original investigations and periodic, new shipper, changed circumstance and
sunset reviews, are "as such" inconsistent with Articles 2.4 and 2.4.2 of the
AD Agreement. In setting out these claims, the European Communities
emphasises that the relevant standard in an "as such" case is not whether the
municipal measure in all cases leads to a WTO inconsistent result, but
whether or not the municipal measure is in conformity with the
AD Agreement  that is, whether or not it is a sound implementation. If a
municipal law provision contributes forcefully to the adoption of a series of
"as applied" measures that are inconsistent with the AD Agreement, then
there is every reason to suppose that the root of the problem lies, at least in
part, with the relevant provision of municipal law.

(i) Section 771(35)(A) and (B)

4.171 The European Communities argues that a margin is the
amount by which one thing differs from another. Normal value may exceed export
price. Or export price may exceed normal value. In both cases there is a
margin. It is not possible to conclude in either case that there is no
margin, or that the margin is zero. Nor is it possible to conclude that, when
export price exceeds normal value, there is no or a zero margin of dumping,
because Article 2.4.2 of the AD Agreement is precisely concerned with
determining whether or not there is a margin of dumping for the subject
product. It is not possible to use in an analysis in progress a premise
that, by definition, cannot yet have been substantiated, being one of the
possible conclusions of that analysis in progress. The first sentence of
Article 2.4.2 of the AD Agreement and particularly the word "margin",
requires a simple and complete comparison between normal value and export
price, being one that does not prejudge how the two elements to be
compared are juxtaposed, nor, thus, whether each one of a series of margins is
expressed as positive or negative. According to the European Communities,
Section 771(35)(A) of the Tariff Act prejudges these matters, for three reasons.

4.172 First, instead of providing for a simple or complete
comparison, as it should, it expressly provides only for the measurement of the
amount by which normal value exceeds export price. It does not provide for the
measurement of the amount by which export price exceeds normal value. Thus, it
provides only for a limited or modified or conditional comparison. The
European Communities contends that this is the interpretation that has been
adopted by USDOC, and defended by USDOC before the United States municipal
courts.

4.173 Second, the use of the word "amount" in the text of
Section 771(35)(A), which does not appear in the first sentence of Article 2.4.2
of the AD Agreement, requires or at the very least strongly suggests a
positive result.

4.174 Third, Section 771(35)(A) defines the amount resulting
from this limited or modified or conditional comparison as a "dumping margin" 
a term almost indistinguishable from the term used in Article 2.4.2 AD
Agreement ("margins of dumping")  but, according to USDOC, with a
different meaning ascribed to it  obfuscating the proper application of the
AD Agreement to such an extent as to render Section 771(35)(A) of the
Tariff Act not in conformity with Article 2.4.2. Thus, according to the European
Communities, the action of the United States in maintaining in force
Section 771(35)(A) of the Tariff Act is not consistent with its obligations
under Articles 2.4 and 2.4.2.

4.175 With respect to Section 771(35)(B), the European
Communities focuses on the "aggregate dumping margin", which is defined therein.
Article 2.4.2 of the AD Agreement uses the word average, rather than the
word aggregate. The word "average" essentially has the mathematical sense of an
arithmetic mean: the result obtained by adding the numbers in a set (whether
negative or positive) and dividing the total by the number of members in the
set. The word "aggregate" has a different, less mathematical nuance. It rather
suggests the grouping together of separate "units", each being an "undivided
whole". That suggests something that is positive, rather than negative.

4.176 Furthermore, the use of the plural "dumping margins" in
Section 771(35)(B) in relation to a specific exporter is also
inconsistent with Article 2.4.2. According to the European Communities, the
Appellate Body has made it clear that intermediate calculation results are not
"margins of dumping", and that "dumping" for the purposes of the AD Agreement
can be found to exist only for the product under investigation as a whole,
and cannot be found to exist only for a type, model or category of that product.83
Thus, the European Communities considers that the action of the United States in
maintaining in force Section 771(35)(B) of the Tariff Act is also not consistent
with its obligations under Articles 2.4 and 2.4.2.

4.177 In response to the evidence submitted by the United
States showing that its municipal courts have found that Section 771(35)(A) and
(B) does not require USDOC to "zero", the European Communities argues that it is
not asking the Panel to substitute its judgment on matters of fact for that of
the United States Court of Appeals. However, the European Communities argues
that in order to properly understand these judgements, it may be relevant for
the Panel to consider: (a) whether United States municipal law requires
authorities to interpret municipal law in conformity with international law; and
(b) whether United States municipal law requires municipal courts to show
deference to determinations by investigating authorities. It is a fact that, in
the United States, under the so-called Chevron doctrine, United States
courts show considerable deference to USDOC's interpretations; and that the
so-called Charming Betsey doctrine does not, apparently, operate, in such
a way as to cause USDOC to make its determinations in conformity with the
international obligations of the United States.

4.178 Thus, the European Communities argues that all it is
asking the Panel to determine is whether or not the relevant provisions of the
Tariff Act are in conformity with the AD Agreement. The European
Communities contends that the United States is relying solely on a "mechanistic"
application of the so-called "mandatory/discretionary" doctrine  an approach
that the Appellate Body has made clear is incapable, in itself, of resolving the
matter.

(ii) Section 731

4.179 Section 731 of the Tariff Act provides that, "if the
administering authority determines that a class or kind of foreign merchandise
is being, or is likely to be, sold in the United States at less than its fair
value" and if there is injury, "then there shall be imposed upon such
merchandise an antidumping duty in an amount equal to the amount by which the
normal value exceeds the export price ". Insofar as this provision is vitiated
by the same language as Section 771(35)(A) and (B), the European Communities
submits that it is also, "as such", inconsistent with the AD Agreement
for the same reasons.

(iii) Section 777A(d)

4.180 The European Communities contends that Section 777A(d)
of the Tariff Act refers only to the possibility of determining that the subject
merchandise is being sold in the United States at less than fair value, instead
of providing for a simple comparison, as in Article 2.4 of the AD Agreement.
Second, it uses the word "comparable", when it should use the words "all
comparable", as in Article 2.4 of the AD Agreement.

4.181 Furthermore, the European Communities claims that that
Section 777A(d) of the Tariff Act is inconsistent with Article 9.3 of the AD
Agreement because it envisages that the provisions of Section 777A(d)(1) may
be abandoned during reviews, including during periodic reviews of the amount of
duty. That is, the European Communities argues that Section 777A(d) precludes
the investigating authority, in normal circumstances, from establishing the
existence of a margin of dumping for the subject product on the basis of a
comparison of a weighted average normal value with a weighted average of prices
of all comparable export transactions, including throughout the investigation
period. The European Communities contends that this provision of the Tariff Act
is not in conformity with Article 9.3 of the AD Agreement, which
expressly provides that: "[t]he amount of the anti-dumping duty shall not exceed
the margin of dumping as established under Article 2".

4.182 To the extent that Sections 771(35)(A) and (B), 731 and
777A(d) of the Tariff Act, as they operate in original investigations, are
considered to be "as such" inconsistent with Articles 2.4 and/or 2.4.2, the
European Communities argues that it follows that they must also be "as such"
inconsistent with Articles 1, 9.3 and 18.4 of the AD Agreement, and
Articles VI:1 and VI:2 of GATT 1994; and Article XVI:4 of the WTO Agreement.84

4.183 Likewise the European Communities argues that to the
extent that Sections 771(35)(A) and (B), 731 and 777A(d) of the Tariff Act, as
they operate in periodic reviews, are "as such" inconsistent with Articles 2.4
and/or 2.4.2, it follows that they must also be "as such" inconsistent with
Articles 1, 9.3, 11.1, 11.2 and 18.4 of the AD Agreement, and Articles
VI:1 and VI:2 of GATT 1994; and Article XVI:4 of the WTO Agreement.85

4.184 Finally, the European Communities submits that the same
conclusions should be reached for new shipper, changed circumstances and sunset
reviews. To the extent that Sections 771(35)(A) and (B), 731 and 777A(d) of the
Tariff Act are used in order to automatically effect model zeroing, simple
zeroing or zeroing with respect to other averaging groups, they must be
considered "as such" inconsistent with Articles 2.4 and/or 2.4.2, and
consequently, also Articles 1, 9.3, 9.5, 11.1, 11.2, 11.3 and 18.4 of the AD
Agreement; Articles VI:1 and VI:2 of GATT 1994; and Article XVI:4 of the WTO
Agreement.86

4.185 The United States argues that the claims of the
European Communities fail because they do not satisfy the
"mandatory/discretionary" test. According to the United States, in order for the
claims relating to Sections 771(35)(A) and (B) and 731 of the Tariff Act to
succeed, the European Communities must demonstrate that these statutory
provisions prohibit USDOC from providing an offset for non-dumped transactions.
In the US  Corrosion‑Resistant Steel Sunset Review case, the Appellate
Body explained, "[t]he party asserting that another party's municipal law, as
such, is inconsistent with relevant treaty obligations bears the burden of
introducing evidence as to the scope and meaning of such law to substantiate
that assertion."88 The United States submits that the relevant evidence must, of
necessity, demonstrate the measure's meaning under municipal law if it is to
yield an objectively correct result.

4.186 The United States contends that the European
Communities cannot make the necessary demonstration, because the United States
Court of Appeals for the Federal Circuit has held twice that the Tariff Act 
including Section 771(35)(A) and (B) in particular  does not require the use of
zeroing. The first case was Timken, which involved a duty assessment
proceeding. In Timken Co. v. United States89 USDOC argued that the Tariff
Act precluded it from reducing the amount of dumping duties to be assessed based
on non‑dumped sales. The Federal Circuit disagreed, finding that "the statute
does not directly speak to the issue of negative‑value dumping margins ... ."
The court went on to hold that while offsetting was not prohibited by the
statute, not offsetting represented one permissible interpretation of the
statute.

4.187 The second case was Corus Staal BV v. United States90
which involved an antidumping investigation. In Corus, the Federal
Circuit again held that not offsetting reflected a permissible interpretation of
the statute, citing its earlier decision in Timken.

4.188 Although in principle the United States Supreme Court
can review decisions of the Federal Circuit involving antidumping matters, in
practice it does not. Therefore, according to the United States, for practical
purposes, Timken and Corus constitute the last word on the
interpretation of the Tariff Act insofar this issue is concerned. According to
the United States, as a factual matter, the claims of the European Communities
must fail.

4.189 Finally, in response to the claims of the European
Communities regarding USDOC's own interpretation of the provisions in question,
the United States notes that USDOC stopped arguing that the statute required it
to "zero" after the Timken decision. In any event, according to the
United States, for the purposes of determining what United States law means,
greater weight cannot be accorded to the historical views of USDOC  an
administrative agency  than to the current holdings of the Federal Circuit, the
institution that has the final say as to what the United States antidumping
statute means.

4.190 As regards Section 777A(d)(2), the United States argues
that the European Communities has failed to make a prima facie case.
According to the United States, the European Communities merely asserts that the
section is as such inconsistent with various WTO obligations "if it means" that
a symmetrical comparison is normally precluded or an asymmetrical comparison is
normally required.

4.191 The United States notes that in US  Carbon Steel,
paragraphs 156-157, the Appellate Body explained that the complaining party has
the burden of proof with respect to "as such" claims, and that "[t]he party
asserting that another party's municipal law, as such, is inconsistent with
relevant treaty obligations bears the burden of introducing evidence as to the
scope and meaning of such law to substantiate that assertion." Here, the United
States argues, while the European Communities has submitted the text of the
statutory sections at issue as exhibits, it has not offered any explanation, let
alone demonstrated, why or how those sections preclude "symmetry" or require
"asymmetry." Instead, through its use of the phrase "if it means," the European
Communities simply poses a question as to whether the statutory sections might
preclude "symmetry" or compel "asymmetry." According to the United States, the
European Communities seems to be unsure of the answer to the question, and
apparently hopes that the United States or the Panel will make the European
Communities' case for it.

4.192 However, the United States notes, that is not the way
WTO dispute settlement works. It is the European Communities' burden to prove
that the statutory sections are WTO-inconsistent. It is not the task of the
United States to prove that they are WTO-consistent. Likewise, the United States
notes, it is well-established that a panel may not 'make the case for a
complaining party.'

4.193 The United States notes that in its Question 70, the
Panel asked the European Communities to comment on the US argument that the
European Communities had failed to make a prima facie case with respect
to section 777A(d)(2). The United States observes that while the European
Communities denied that it had failed to make a prima facie case, with
respect to its challenge to Section 777A(d)(2), the European Communities did
modify paragraph 217, line2, of its first submission so that the words "given
that" replace the word "if".

4.194 With respect to the European Communities' denial of its
failure to make a prima facie case, the United States refers the Panel to the
discussion of US  Gambling, in connection with the European Communities'
failure to make a prima facie case regarding the Manual. With respect to
Section 777A(d)(2), the European Communities has not explained, let alone
demonstrated, how the provision operates in a WTO-inconsistent manner.

4.195 With respect to section 777A(d)(2), the United States
notes that the European Communities does not even quote the provision, which
reads as follows:

"In a review under section 751, when comparing export
prices (or constructed export prices) of individual transactions to the
weighted average price of sales of the foreign like product, the
administering authority shall limit its averaging of prices to a period not
exceeding the calendar month that corresponds most closely to the calendar
month of the individual export sale."

4.196 On its face, the United States explains, Section
777A(d)(2) provides that "when" the average-to-transaction method is used in
reviews under section 751, the USDOC must use monthly weighted average prices to
determine normal value. According to the United States, Section 777A(d) does not
address the question of whether or when the average-to-transaction method must
be used. Thus, the United States argues, the European Communities has failed to
explain how the plain text of section 777A(d)(2) mandates WTO-inconsistent
action. Put differently, the European Communities has failed to make its
prima facie case."

4.197 The European Communities considers that this provision
is not in conformity with Articles 2.4, 2.4.2 and 9.3 of the AD Agreement
because: (i) it precludes the investigating authority, in normal circumstances,
from establishing the existence of a margin of dumping for the subject product
on the basis of a comparison of a weighted average normal value with a weighted
average of prices of all comparable export transactions; and (ii) it requires an
investigating authority, in all cases or normally, to make an asymmetrical
comparison.

4.198 To the extent that Section 751(a)(2)(A)(i) and (ii) of
the Tariff Act, as it operates in periodic reviews, is found to be "as such"
inconsistent with Articles 2.4 and/or 2.4.2, it follows that it must also be "as
such" inconsistent with Articles 1, 9.3, 11.1, 11.2 and 18.4 of the AD
Agreement, and Articles VI:1 and VI:2 of GATT 1994; and Article XVI:4 of the
WTO Agreement.92

4.199 Furthermore, the European Communities submits that the
same conclusions should be reached for new shipper, changed circumstances and
sunset reviews. To the extent that Section 751(a)(2)(A)(i) and (ii) of the
Tariff Act is used in these reviews to automatically effect simple zeroing or
zeroing with respect to other averaging groups, it must be considered "as such"
inconsistent with Articles 2.4 and/or 2.4.2, and consequently, also in violation
of Articles 1, 9.3, 9.5, 11.1, 11.2, 11.3 and 18.4 of the AD Agreement;
Articles VI:1 and VI:2 of GATT 1994; and Article XVI:4 of the WTO Agreement.93

4.200 As regards Section 751(a)(2)(A)(i) and (ii), the United
States argues that the European Communities has failed to make a prima facie
case. According to the United States, the European Communities merely asserts
that the section is "as such" inconsistent with various WTO obligations "if it
means" that a symmetrical comparison is normally precluded or an asymmetrical
comparison is normally required.

4.201 As the United States noted in connection with Section
777A(d)(2), the Appellate Body has explained that the complaining party has the
burden of proof with respect to "as such" claims, and that "[t]he party
asserting that another party's municipal law, as such, is inconsistent with
relevant treaty obligations bears the burden of introducing evidence as to the
scope and meaning of such law to substantiate that assertion." Here, the United
States argues, while the European Communities has submitted the text of the
statutory sections at issue as exhibits, it has not offered any explanation, let
alone demonstrated, why or how those sections preclude "symmetry" or require
"asymmetry." Instead, through its use of the phrase "if it means," the European
Communities simply poses a question as to whether the statutory sections
might preclude "symmetry" or compel "asymmetry." According to the United
States, the European Communities seems to be unsure of the answer to the
question, and apparently hopes that the United States or the Panel will make the
European Communities' case for it.

4.202 Again, the United States notes, that is not the way WTO
dispute settlement works. It is the European Communities' burden to prove that
the statutory sections are WTO-inconsistent. It is not the task of the United
States to prove that they are WTO-consistent. Likewise, the United States notes,
it is well-established that a panel may not "make the case for a complaining
party."

4.203 The United States notes that in its Question 70, the
Panel asked the European Communities to comment on the US argument that the
European Communities had failed to make a prima facie case with respect
to Section 751(a)(2)(A)(i) and (ii). The United States observes that while the
European Communities denied that it had failed to make a prima facie case, with
respect to its challenge to Section 751(a)(2)(A)(i) and (ii), the European
Communities continued to use the phrase "if it means".

4.204 With respect to the European Communities' denial of its
failure to make a prima facie case, the United States again refers the
Panel to the discussion of US  Gambling, in connection with the European
Communities' failure to make a prima facie case regarding the Manual.
With respect to sections 751(a)(2)(A)(i) and (ii), the United States emphasizes
that the European Communities continues to assert that these provision are
WTO-inconsistent "if they mean" that asymmetry is required, so the original
problem noted by the United States remains. However, the United States argues,
even if the European Communities substituted "given that", this would not
suffice to make its case. According to the United States, the European
Communities has to explain why the statute that it quotes mandates the outcome
to which it objects. The United States asserts that it has not done so,
notwithstanding that the European Communities, as the complaining party, bears
the burden of proof. The European Communities has not explained, let alone
demonstrated, how the provision operates in a WTO-inconsistent manner.

4.205 The European Communities submits that Section
351.414(c)(2) of the Regulations is "as such" inconsistent with Articles 2.4 and
2.4.2 of the AD Agreement because it is inconsistent with the fair
comparison requirement established by the Appellate Body. According to the
European Communities, the fair comparison requirement precludes a national
measure providing that the average-to-transaction method is the norm. Section
351.414(c)(2) does not conform with this standard. First, it permits the use of
an asymmetrical method of comparison without any of the cumulative conditions
set out in Article 2.4.2 having been met. Second, it provides that the normal
rule is asymmetry, when Article 2.4.2 of the AD Agreement recalls that
the normal rule is symmetry. The provision also fails to provide for a fair
comparison within the meaning of Article 2.4 of the AD Agreement.

4.206 The United States argues that Section 351.414(c)(2) of
the Regulations does not mandate any WTO-inconsistent conduct nor does it
preclude WTO-consistent action. The heading to paragraph (c) of section 351.414
is entitled "Preferences." Subparagraph (c)(2) provides as follows: "In a
review, the Secretary will normally use the average-to-transaction method."
According to the United State, as previously recognized by the Appellate Body,
the word "normally" is an indicator of discretion. Thus, section 351.414(c)(2),
on its face, provides discretion to use something other than the
average-to-transaction method. Given that the European Communities relies solely
on the text of the regulation, there is no basis for finding that the regulation
mandates asymmetry or precludes symmetry. Accordingly, there is no basis for
finding that the regulation is inconsistent "as such" with United States WTO
obligations.

5.1 Argentina argues that the question for the Panel in this
dispute is whether zeroing is a practice consistent with the obligations set out
in Articles 2.4 and 2.4.2 of the AD Agreement. If it is not, then
Argentina shares the view of the European Communities that, since calculation of
the dumping margin is central and fundamental to an anti‑dumping proceeding, any
defect in the determination of the margin of dumping will inevitably adversely
affect the consistency of the investigation as a whole by generating
inconsistencies with other provisions of the AD Agreement.

1. Arguments with respect to Articles 2.4 of the AD
Agreement

5.2 Argentina contends that Article 2.4 lays down a general
obligation requiring Members to ensure a fair comparison between export price
and the normal value when establishing the existence of dumping. Such a
comparison is the only means provided for in the AD Agreement for
determining the existence of dumping. Argentina argues that the Appellate Body
has stated that this general obligation informs all of Article 2.97

5.3 Although the AD Agreement makes no reference to
zeroing, it does mention that certain types of adjustments may be made to prices
in order to facilitate comparison. Argentina asserts that it would be difficult
to find justification for zeroing in such adjustments. Since any comparison
between products not ordinarily comparable is deemed to be unfair and
adjustments are provided for to remedy such a situation, there is no doubt that
zeroing, because it inflates dumping margins, is inconsistent with the
obligation to conduct a fair comparison between normal value and export price
laid down in Article 2.4. Thus, zeroing breaches Article 2.4 of the AD
Agreement.

2. Arguments with respect to Article 2.4.2 of the AD
Agreement

5.4 Argentina argues that previous Panels and the Appellate
Body have found zeroing to be inconsistent with Article 2.4.2 of the AD
Agreement.98 Argentina asserts that Article 2.4.2 requires that once the
transactions that are to serve as the basis for the determination of dumping are
identified, they must all be taken into account. Under the AD Agreement,
it is not possible to select the transactions that can be used for the final
determination of dumping precisely on the basis of what one is seeking to
determine, namely whether or not dumping exists, and in what amount.

5.5 Argentina does not share the view of the European
Communities on the applicability of Article 2.4.2 to the imposition phase and
review phase of an anti-dumping proceeding. According to Argentina, the
interpretation of the European Communities is contrived and has no basis in the
text of the AD Agreement or in interpretations given in earlier cases.
However, Argentina argues that if the United States calculates a new dumping
margin in periodic reviews or sunset reviews, that margin must meet the
requirements of Article 2.4 of the AD Agreement.

3. Arguments with respect to Articles 3.1, 3.3, 3.4 and
3.5 of the AD Agreement

5.6 Argentina asserts that zeroing results in inconsistencies
with Articles 3.1, 3.3, 3.4 and 3.5 of the AD Agreement. According to
Argentina, the Appellate Body has ruled that both dumping and margins of dumping
can be established only on the basis of all the transactions involved, once the
product under investigation has been defined, in order to maintain the necessary
consistency in the treatment of that product for the purpose of determining the
volume of dumped imports, causal link between dumped imports and injury to
domestic industry, and calculation of the margin of dumping.

5.7 It is precisely for the sake of this consistency, which
should prevail from beginning to end of anti-dumping investigations, that the
consequence of zeroing cannot be ignored. In Argentina's view, the use of
zeroing gives rise to artificially inflated margins of dumping, which according
to Article 3.4 should then be taken into account as one of the relevant factors
for determining injury to the domestic industry. An artificially inflated margin
of dumping cannot be a proper basis for an analysis of this kind, as it
generates inconsistency with Article 3.1 (by tainting the determination of
injury, which must be based on positive evidence and an objective examination of
the evidence), Article 3.3 (because of the presumption that the de minimis
threshold could have been violated) and Article 3.5 (because it is not a proper
basis for establishing the causal relationship required by the AD Agreement).

4. Arguments with respect to Articles 9.3 of the AD
Agreement

5.8 Argentina argues that to impose anti-dumping duties on
the basis of a determination of dumping that fails to meet the fair comparison
requirement of Article 2.4 and is based on a margin of dumping calculated
without taking all the transactions into account, cannot be consistent with
Article 9.3. This is so because the duties imposed are inconsistent with Article
2. Thus, zeroing leads to the imposition of duties at a higher level than the
margin of dumping that would have prevailed had the calculation not been made
with this methodology, in violation of Article 9.3.

B. BRASIL

5.9 Brazil argues that it sees no reason for this Panel to
depart from the well established understanding that zeroing is impermissible
under the AD Agreement. In view of the findings of the Appellate Body in
previous disputes involving the same subject matter, namely EC  Bed Linen
and US  Softwood Lumber, Brazil argues that the United States should
avoid protracted litigation and agree to change its zeroing practice in all
future anti-dumping proceedings, including investigations and reviews,
regardless of the type of comparison that is used.

1. Zeroing is WTO-Inconsistent in all Contexts

5.10 According to Brazil, the fundamental issue before the
Panel in this dispute is whether zeroing distorts the calculation of a dumping
margin. The Appellate Body in US  Softwood Lumber V made clear that such
a distortion exists. Yet, the United States would have the Panel believe that as
long as an administering authority uses a comparison methodology other
than the average-to-average methodology normally applied in United States
investigations, then the prohibition against zeroing does not apply. This cannot
be permitted, not merely under Article 2.4.2 of the AD Agreement, but
also under Article 2.1 of the AD Agreement.

5.11 Based on the Appellate Body's understanding of the
meaning of the term "dumping" in US  Softwood Lumber V, it does not
matter how comparisons are made. All comparisons must ensure that all products
are taken into account. The overriding rule is that an administering authority
cannot simply ignore some transactions, but must instead incorporate the results
of the comparison of all transactions into its dumping calculation conducted
under Article 2.1. It is with this in mind that the Appellate Body concluded in
EC  Bed Linen that zeroing was not merely a violation of Article 2.4.2,
but also of the "fair comparison" requirement in Article 2.4. Although it agrees
with the positions taken by the European Communities in the present dispute,
Brazil believes it is largely academic to discuss whether Article 2.4.2 applies
to reviews, or whether "reviews" are considered part of "investigations", or
whether transaction-to-transaction average comparisons are permitted. The fact
is that zeroing reflects an unfair comparison. The fair comparison requirement
in Article 2.4 is not limited to certain types of proceedings or certain types
of comparisons; it applies whenever dumping margins are calculated. Therefore,
zeroing should be deemed to violate Article 2.4 of the AD Agreement in
all contexts.

5.12 Brazil asserts that the Panel should pay careful
attention to the intrinsically interlocking nature of provisions and concepts
governing the calculation of dumping margins, both in the so-called "original
investigations" and "reviews". Referring to the definition of "dumping"
contained in Article 2.1 of the AD Agreement, it is undisputable that
such definition is the only one applicable throughout the Agreement, regardless
of the stage of any antidumping proceedings where "dumping" is examined. Article
2.1 determines that a comparison between export prices and normal values of the
product concerned is inherent to the definition of dumping. Article 2.4, in
turn, stipulates that the comparison between the very same terms incorporated
into the comparison required by Article 2.1  "export prices" and "normal value"
 must be "fair". In reading both provisions harmoniously, a treaty interpreter
must necessarily arrive at the conclusion that, whenever a calculation of a
dumping margin is called for, a fair comparison between export prices and normal
values is obligatory.

2. United States' Policy of Zeroing

5.13 As the United States admits, the Appellate Body
indicated in the US  Corrosion Resistant Steel Sunset Review case that
instruments or actions setting out rules or norms can be challenged "as such" in
a WTO dispute. In the present dispute, the measure at issue is USDOC's policy
of zeroing, which clearly falls within the scope of rules, norms or standards to
which the Appellate Body referred in the US  Corrosion Resistant Steel
Sunset Review case. The question of whether or not these measures mandate
application of zeroing could be deemed irrelevant in this instance, where the
practice of zeroing is applied consistently from case to case.

5.14 Brazil argues that zeroing is no different from the
kinds of tests or methodologies the United States has agreed to change in the
past as a result of dispute settlement, such as the USDOC's 99.5 per cent "arm's
length test" in issue in the US  Hot Rolled Steel caseand the
"same person" methodology used by USDOC in countervailing duty cases involving
privatization, for example, in the US  Countervailing Measures on Certain EC
Products case. According to Brazil, zeroing is a policy that
USDOC uses in every case. This policy is reflected in a combination of, at
least: (a) the consistent application of the policy in every case in which there
is negative dumping; and (b) the USDOC Antidumping Manual. These, in
combination, set forth a rule/norm/standard for applying the zeroing methodology
in United States anti-dumping proceedings, which the Appellate Body has
determined may be challenged in accordance with Article 18.4 of the AD
Agreement, and should be found to violate Article 2.4 of that Agreement.

5.15 Whether these measures mandate application of the
zeroing methodology could be deemed irrelevant in this instance, where the
practice of zeroing is applied consistently from case to case. Brazil submits
that repeated use of the zeroing methodology is a measure that the Panel should
find inconsistent with the AD Agreement, and that its report should
ensure that the United States eliminate the zeroing policy in all future cases.

5.16 Brazil submits that, if the Panel and, if necessary, the
Appellate Body do not take action that prevents the United States from
continuing its disregard of basic fairness in the application of its
anti-dumping laws, the WTO and its Members will suffer. Brazil encourages the
Panel to find that the use of zeroing, whether in investigations or reviews, and
regardless of the type of comparison employed, is inconsistent with Article 2.4
of the AD Agreement and should be eliminated once and for all.

C. CHINA

1. Measures that can be Challenged "As Such"

5.17 China contends that whether a measure can be challenged
for the purpose of WTO dispute settlement is governed by the substance of the
measure at issue, not its form. According to China, any kind of measures taken
by a Member, no matter whether legislative or executive, may be the subject of
dispute settlement under the DSU or other applicable covered agreements, as long
as another Member considers that benefits accruing to it under the covered
agreements are being impaired by such "measures". To this end, China contends
that four elements must be present in order to challenge measures "as such"
under the AD Agreement: (i) the measure must be of general application;
(ii) the measure must be a rule, norm or a standard; (iii) the measure must be
adopted by a Member, no matter by whether by its legislative or executive
branches; and (iv) the measure must be connected with the conduct of
anti-dumping proceedings.

5.18 China also argues that the "mandatory/discretionary"
distinction is not decisive as to whether a measure is WTO-inconsistent. In
China's view, discretionary legislation can also be WTO-inconsistent.

2. Arguments with respect to Article 2.4.2 of the AD
Agreement

5.19 China submits that the obligations in Article 2.4.2 are
not limited to original investigations. China notes that the AD Agreement
does not define the word "investigation", and that within WTO jurisprudence,
there are no precedents distinguishing assessment proceedings from original
investigation.

5.20 China considers that duty assessment proceedings must be
based on the calculation of a dumping margin according to Article 2 of the AD
Agreement. If duty assessment proceedings were independent of any dumping
margin, the chapeau of Article 9.3 would be redundant. It follows that, when
calculating a dumping margin, investigating authorities must abide by Article 2,
which naturally includes Article 2.4 and Article 2.4.2.

5.21 Finally, China submits that Article 2.4.2 expressly
restricts the use of the third comparison methodology in Article 2.4.2 to
situations of "targeted dumping". China considers that recourse to an
asymmetrical methodology pursuant to Article 9.4 does not absolve Members of
this obligation.

D. HONG KONG, CHINA

1. Arguments with respect to Articles 2.4 and 2.4.2 of
the AD Agreement

5.22 Hong Kong, China argues that insofar as the Panel finds
that the United States applies zeroing in effecting a
"weighted-average-to-weighted-average" comparison, it must find such practice
inconsistent with Articles 2.4 and 2.4.2 of the AD Agreement for the same
reasons given by the Appellate Body in EC  Bed Linen99 and US 
Softwood Lumber V100cases.

5.23 Hong Kong, China further submits that the use of zeroing
in effecting the other two types of price comparison in Article 2.4.2 (namely,
"transaction-to-transaction" and "weighted-average-to-transaction" comparisons),
is also inconsistent with Article 2.4 of the AD Agreement. Noting the
difference between the current wording of Article 2.4 and the earlier version
(Article 2.6) contained in the Tokyo Round Anti-dumping Code, Hong Kong, China
asserts that Article 2.6 of the Tokyo Round Code was specifically re-cast so
that the current Article 2.4 of the AD Agreement contains a new, separate
sentence on fair comparison at the beginning of the Article. This new drafting
highlights the overarching nature of the obligation to make fair comparison, and
the fact that it constitutes a substantive obligation in itself independent of
the substantive obligations set out in other parts of Article 2.4, including
Article 2.4.2.

5.24 Hong Kong, China submits that "fair comparison" requires
that the way the comparison is conducted must be objectively "fair" in the sense
of being equitable and balanced. The use of zeroing when establishing an overall
level of dumping is, per se, unfair, regardless of which method of price
comparison under Article 2.4.2 is used. By disregarding some of the transactions
used in the intermediate comparisons, the resultant overall margin of dumping is
established based on incomplete price information and as such, the calculation
of the overall margin of dumping is inherently unreliable. Moreover, zeroing has
an inherent bias which may inflate and distort not only the magnitude of the
margin of dumping, but also a finding of the very existence of dumping. A price
comparison which uses zeroing is therefore inherently inequitable and unfair,
and inconsistent with the requirement to make "fair comparison" in Article 2.4.

5.25 Hong Kong, China further submits that, even though the
words "all comparable export transactions" in Article 2.4.2 are not expressly
stated in relation to the "transaction-to-transaction" comparison methodology,
by its nature, such methodology requires an overall margin of dumping for the
product under investigation to be calculated based on a comparison of each
export transaction with a corresponding domestic transaction sales transaction,
and the zeroing is therefore inherently inconsistent with the
"transaction-to-transaction" comparison methodology in Article 2.4.2.

5.26 Hong Kong, China further asserts that the term
"investigation" as used in the AD Agreement is not necessarily limited to
an "original" or "initial" investigation. The term has been used in other parts
of the AD Agreement in a general sense to refer to other anti-dumping
proceedings. With respect to the contention of the United States that Article
18.3 explicitly recognises the difference between "investigations" that may lead
to the imposition of a measure, and "reviews" of existing measures, Hong Kong,
China submits that while Article 18.3 covers all types of anti-dumping
proceedings between the two terms "investigation" and "reviews of existing
measures", the purpose of Article 18.3 is not to, nor does Article 18.3, clearly
define which proceedings fall within the meaning of "investigations" and
"reviews" as used in the AD Agreement or draw a clear distinction between
the two. Article 18.3 does not provide specific guidance on how the word
"investigation" is to be interpreted elsewhere in the AD Agreement. In
Hong Kong, China's view, the meaning of "investigation" in the AD Agreement
should be read and construed in the specific context in which it appears.

5.27 With respect to the contention of the United States that
Article 2.4.2 does not apply to retrospective assessment of anti-dumping duty
under Article 9.3.1, Hong Kong, China states that Article 2.4.2 refers to the
establishment of the existence of margins of dumping "during the investigation
phase", but draws no apparent distinction between different types of
"investigation", nor does it ascribe any special meaning to the term
"investigation". Consistent with the customary rules of treaty interpretation
under public international law, Hong Kong, China submits that in the context of
Article 2.4.2, "investigation" should be construed as referring to any procedure
undertaken by an investigating authority which conforms to the ordinary meaning
of an "investigation" and which leads to the establishment of the existence of
margins of dumping for the subject product. "Investigation phase" should be
construed accordingly.

5.28 Referring to dictionary definition of "investigation",
Hong Kong, China notes that in a retrospective assessment, an investigating
authority has to examine or inquire into transactions that actually took place
in the relevant period in order to verify the existence of dumping and the
margin of dumping for the subject product during that period, so as to determine
the final liability for payment of anti-dumping duties. These procedural steps
carried out by an investigating authority conform objectively to the ordinary
meaning of the word "investigation", and lead to the establishment of margins of
dumping as referred to in Article 2.4.2. Therefore, they constitute an
"investigation" for the purpose of Article 2.4.2.

5.29 With respect to the contention of the United States that
Article 9 does not incorporate the requirements of Article 2.4.2, Hong Kong,
China submits, with specific reference to paragraphs 7.357 and 7.361 of the
Panel report of Argentina  Poultry Anti-Dumping Duties, that "margin of
dumping" in Article 9.3 refers in the case of retrospective assessment to the
margin of dumping established for the purpose of final duty assessment, that
Article 2 sets forth a definition of dumping "for the purpose of this
Agreement", that it would not be possible to establish a margin of dumping
without reference to the various elements of Article 2, and that had the Panel
in Argentina  Poultry Anti-Dumping Duties been specifically asked to
consider the true meaning and scope of "investigation phase" in Article 2.4.2,
the natural conclusion would have been that the provisions of Article 2.4.2
apply to Article 9.3 assessments.

2. Arguments with respect to Whether the Practice of
Zeroing is a Measure which can be Submitted as such to Dispute Settlement

5.30 Hong Kong, China submits that the object and purpose of
the WTO Agreement, and in particular, the object and purpose of the DSU, points
to a broad interpretation of the term "measure". Any act of a Member, whether or
not legally binding, could be submitted "as such" to dispute settlement,
including even "non-binding administrative guidance by a government" and "acts
setting forth rules and norms that are intended to have general and prospective
application". The AD Margin Program (a computer programme designed for margin
calculations, which is generally used by the United States Department of
Commerce in anti-dumping investigations and through operation of which zeroing
is applied), and the computer instructions comprised in it, are of the nature of
"norms or rules of general and prospective application" and can be challenged
"as such" in dispute settlement proceedings.

5.31 Hong Kong, China further asserts that, in any event,
just as instruments "setting forth" rules or norms of general and prospective
application may be brought "as such" to dispute settlement, unwritten rules or
norms may also be submitted "as such" to dispute settlement: if a particular act
(e.g. zeroing) is repeated to such consistency as to give rise to a "repeated
pattern of similar responses to a set of circumstances", then such "repeated
pattern of similar responses", or "practice", must be regarded as clear evidence
as to the existence of rules or norms which are of general and prospective
application.

5.32 Were this not the case, a Member would be free to
formulate "unwritten" or vague rules or norms and apply them consistently in a
particular manner so as to impair the benefits accruing to another Member under
the covered agreements, severely reducing transparency in the rules and norms
adopted by a Member to implement the covered agreement, crippling the protection
of the security and predictability of trade and seriously undermining the
purpose of the WTO dispute settlement system.

E. INDIA

1. Model Zeroing and Simple Zeroing are "as such"
Measures

5.33 India submits that one of the key issues in this dispute
is whether model zeroing and simple zeroing, are "as such" measures that may be
challenged. According to India, in both the US  Corrosion-Resistant SteelSunset Review and US  Oil Country Tubular Goods Sunset Reviews
cases, the Appellate Body emphasized that the scope of Article 18.4 of the AD
Agreement is broad, covering "the entire body of generally applicable rules,
norms and standards adopted by Members in connection with the conduct of
anti-dumping proceedings." This interpretation of Article 18.4 of the AD
Agreement indicates that the scope of dispute settlement under the AD
Agreement for an "as such" claim is not meaningfully different from the
general scope of dispute settlement under Article 6.2 of the DSU. In each case,
the dispute may concern any rules, norms or standards with general and
prospective application.

5.34 India asserts that the United States zeroing methodology
is incorporated in the United States' standard anti-dumping computer programs.
Certain procedures in these programs result in zeroing through model zeroing or
simple zeroing. The standard programs, inclusive of the zeroing procedures,
"have been designed to cover as many situations as possible". Each and every
program that is applied by the United States in a particular anti-dumping
proceeding must use "the same standard calculation methodology," and that
methodology must "conform" to the Administration's current methodological
requirements. In other words, the standard programs constitute a pre-determined
set of procedural rules and are relied upon by the United States for calculating
the dumping margins in all anti-dumping proceedings. Thus, the United States'
standard anti-dumping computer programs, including the procedures that result in
zeroing through model zeroing or simple zeroing, can be characterized as being
norms or rules that are applied on a generalized and prospective basis in
anti-dumping proceedings. Consequently, model zeroing or simple zeroing are
measures that may be challenged "as such" within the WTO system.

2. "Mandatory  Discretionary" Distinction

5.35 India argues that on the basis of the mandatory 
discretionary doctrine, the United States has urged the Panel to reject the "as
such" claims of the European Communities. According to India, this position is
contrary to the findings of the Appellate Body in U.S.  Corrosion-Resistant
Steel Sunset Review, where the Appellate Body saw no reason for concluding
that "in principle, non-mandatory measures cannot be challenged "as such". It is
India's position that in order to determine whether model zeroing and simple
zeroing are "as such" WTO-inconsistent, the nature and character of these
procedures must be examined.

3. Model Zeroing and Simple Zeroing are as such
inconsistent with the AD Agreement

5.36 India asserts that existing case law on the issue of
zeroing confirms that model zeroing and simple zeroing are "as such"
inconsistent with Article 2.4 and 2.4.2 of the AD Agreement. According to
the Appellate Body, "when investigating authorities use a zeroing methodology
to calculate a dumping margin, whether in an original investigation or
otherwise, that methodology will tend to inflate the margins calculated. Apart
from inflating the margins, such a methodology could, in some instances, turn a
negative margin of dumping into a positive margin of dumping. The inherent
bias in a zeroing methodology may distort not only the magnitude of a dumping
margin, but also a finding of the very existence of dumping."101 Furthermore, in
the EC  Bed Linen case, the Appellate Body was of the view that "a
comparison between export price and normal value that does not fully take
into account the prices of all comparable export transactions  such as
the practice of zeroing at issue in this dispute  is not a "fair
comparison" between export price and normal value, as required by Article 2.4
and by Article 2.4.2."102 According to India, these findings on zeroing are
applicable with equal force to model zeroing and simple zeroing resorted to by
the United States in its anti-dumping investigation procedures.

5.37 Furthermore, India argues that it is also clear from the
ruling of the Appellate Body in the US  Corrosion-Resistant Steel
Sunset Review case that the requirements of a "fair comparison" in Article
2.4 apply equally to a dumping margin calculated or used for purposes of Article
9.3. Thus, the resort by the United States, to simple zeroing as a normative
rule in sunset reviews and reviews for the purpose of Article 9.3 is "as such"
inconsistent with the provisions of Article 2.4.

F. JAPAN

1. Model Zeroing and Simple Zeroing are Measures that can
be Challenged as such

5.38 Japan argues that nothing in the AD Agreement
limits the types of measure that may, as such, be the subject of dispute
settlement. To this end, Japan notes that the Appellate Body has clarified that
"any act or omission attributable to a WTO Member can be a measure of that
Member" and that measures "consisting of acts setting forth rules or norms that
are intended to have general and prospective application" or "instruments of a
Member containing rules or norms" can be challenged as such.

5.39 The Appellate Body explained that the disciplines and
rules of the WTO "are intended to protect not only existing trade but also the
security and predictability needed to conduct future trade" and "allowing claims
against measures, as such, serves the purpose of preventing future disputes by
allowing the root of WTO-inconsistent behaviour to be eliminated" There are a
growing number of disputes concerning the United States' use of zeroing
procedures and, to avoid "future disputes," the European Communities challenges
"as such" the administrative procedures embodying the United States' zeroing
norms, as envisaged by the rulings of the Appellate Body.

5.40 According to Japan, the characterization of an act in
domestic law is not determinative of its character as a "measure" in WTO law.
The issue does not depend on "the label given" to an instrument in domestic law,
nor upon its "form or nomenclature," but on the "substance and content of the
instrument." Accordingly, the fact that the measures at issue are, in part, in
the "form" of a computer program is therefore of no importance to their
character in WTO law.

5.41 Contrary to the United States' assertion, the mere
possibility of change alone does not deprive the acts in question of their
character as measures covered by Article 18.4 of the AD Agreement. Nor
does the nature of the domestic procedures by which the measure in question is
"changed" affect its character in WTO law. Furthermore, the question whether or
not an act is binding under municipal law is also irrelevant to its
characterization as a measure in WTO law.

5.42 Contrary to the United States' argument, the ordinary
meaning of the word "procedure" in Article 18.4 encompasses a system, method or
mode of proceeding, which may include a methodology. Japan also confirms the
view of the European Communities that the dictionary meaning of "procedure"
includes "computers: a set of instructions for performing a specific task."
Thus, an "administrative procedure," in Article 18.4, is a system or method that
directs the administering authority's conduct or management of anti-dumping
proceedings. It can include computer procedures that provide a set of
instructions for executing tasks.

5.43 In determining that the Sunset Policy Bulletin ("SPB")
is a "measure" in US  Oil Country Tubular Goods Sunset Reviews, the
Appellate Body addressed three separate issues: first, the normative character
of the alleged measure; second, the generality of its application; and, third,
the prospective quality of its application. Notably, the Appellate Body found
that the normative character of the SPB stemmed from the fact that it provides
"guidance" to the administrative authority and that this guidance creates
"expectations" among users that the authority will act in a particular way.

5.44 Model zeroing and simple zeroing are "as such" measures
because they are rules, norms or standards applied by the United States in
anti-dumping proceedings on a generalized and prospective basis. In all
anti-dumping proceedings, the United States relies on standard computer programs
to calculate dumping margins, the nature and purposes of which are described in
the publicly available Manual. The Manual sets forth published pre-determined
rules and procedures that provide "administrative guidance" to USDOC personnel,
public and private users. Accordingly, as long as the rules and procedures in
the Manual continue to apply, they can be the subject of WTO dispute settlement
proceedings as measures, irrespective of their characterization in United States
law. As Chapter 9 of the Manual states explicitly that there are "procedures" to
be used for calculating dumping margins and that these are contained in standard
computer programs. The Manual indicates that the "standard programs" are
"procedures" that direct the administrative authority in executing dumping
determinations.

5.45 The United States itself, in its first written
submission, accepts that the standard AD Margin Program "implements rules or
norms adopted by a decision-maker." The AD Margin Program is, therefore, no
different from any other "measure," in that it reflects or "implements rules or
norms" adopted by a decision-maker. According to Article 18.4 of the AD
Agreement, decisions adopted regarding the administration of anti-dumping
proceedings are implemented through "laws, regulations and administrative
procedures." That Program is, in and of itself, an "instrument" for
purposes of Article 18.4. As stated above, the standard AD Margin Program
constitutes an "administrative procedure" because it provides a system or method
that directs the Administration's execution of dumping determinations.

5.46 In accordance with the Manual, each and every program
that is applied by the United States in a particular proceeding must use "the
same standard calculation methodology," and that methodology must "conform" to
the Administration's current methodological requirements. This systematized
manner of proceeding constitutes a "procedure." The calculation procedures are,
therefore, not established on an "ad hoc" basis in particular
investigations or reviews; they are pre-determined for application on a
generalized and prospective basis.

5.47 The standard program for the calculation process
referred to in the Manual relevant to this case is the AD Margin Calculation
Program. The key line of this computer program is the code "WHERE EMARGIN GT
0;". Through this line, the standard AD Margin Calculation Program includes,
in the calculation of the numerator for the overall dumping margin fraction,
only the margins calculated for models (in the case of model zeroing) or for
individual export transactions (in the case of simple zeroing) that are
greater than zero. Negative (and zero) margins are excluded from the
numerator. Such model and simple zeroing rules are to be used prospectively in
every specific program, consistent with their normative character.

5.48 In addition, the evidence of copies of computer programs
submitted by the European Communities confirms that the zeroing procedures are
applied on a normative and generalized basis as indicated by the Manual. They
are, in short, administrative procedures. Further, according to the testimony
attached with Japan's submission, since 1993, "the procedure for calculating the
overall weighted-average percentage dumping margin, including the 'zeroing'
procedure, has never changed."

5.49 Japan submits that, in light of: (1) the standard AD
Margin Calculation Program: (2) the many specific margin calculation programs
provided by the European Communities: (3) the Manual; and (4) the attached
testimony by an expert, model zeroing and simple zeroing are norms or rules that
are applied by the United States on a generalized and prospective basis. The
very purpose of the AD Margin Calculation Program is to establish standard
"programming procedures" that operate mechanistically to ensure that a
particular  "proper"  calculation methodology is applied universally and
predictably.

2. Model Zeroing and Simple Zeroing are as such
WTO-Inconsistent

5.50 The Appellate Body has held that the Article 2.1 of the
AD Agreement "applies to the entire Anti-Dumping Agreement" and
Article 2 sets forth the "agreed disciplines" for determining the existence and
amount of the margin of dumping.

5.51 As part of these "agreed disciplines," the first
sentence of Article 2.4 of the AD Agreement states "[A] fair
comparison shall be made between the export price and the normal value". The
Appellate Body ruled that this provision "sets forth a general
obligation" that "informs allof Article 2." The ordinary meaning
of the word "fair" in Article 2.4 requires a comparison of normal value and
export price that is "unbiased," "impartial," and "offer[s] an equal chance of
success" to both domestic parties and exporters. This suggests that a "fair
comparison" is one that is "even-handed," a meaning that is reminiscent of the
Appellate Body's interpretation of Articles 2.1 and 2.2.1 in United States 
Hot-Rolled Steel, in which it made an explicit link between "fairness" and
"even-handedness" in Article 2. The Appellate Body also held that there was a
"lack of even-handedness" because the "combined application of [the measures]
operated systematically to raise normal value, through the automatic
exclusion of marginally low-priced sales, coupled with the automatic inclusion
of all high priced sales, except proved, upon request, to be aberrationally high
priced" which "disadvantaged exporters."

5.52 Japan believes that the same interpretive principles
guide the "fair comparison" under Article 2.4. Thus, it would not be "fair"
under that provision to conduct a comparison between normal value and export
price in an arbitrary way which is "more likely" to result in a
determination of dumping or is "more likely" to increase the margin of
dumping. Any procedure which either excludes high-priced export transactions,
reduces export price, or raises normal value, make a dumping determination more
likely and improperly inflate any margin that is found to exist. All of these
procedures, therefore, create bias because they disadvantage exporters. None of
these procedures, therefore, is consistent with the requirements of a "fair
comparison" under Article 2.4 of the AD Agreement.

5.53 As the AD Agreement requires, "all comparable
export transactions" for "a product" are to be compared in calculating a dumping
margin. The Appellate Body indicated, in this regard, that the investigating
authority must take fully into account the entirety of the prices of all
comparable export transactions of the subject product in the price comparison,
and this, in turn, constitutes the fair, even-handed way to compare
transactions. The model and simple zeroing, however, result in precisely the
types of unfairness outlined above because they operate systematically to
disadvantage and prejudice exporters. The operation of the zeroing procedures:
(1) excludes from the numerator in the calculation of the
weighted-average dumping margin the negative margins for higher-priced
comparable export transactions or models; and (2) interferes with the
comparison of normal value and export price to generate a "zero"  instead of a
negative  outcome by, in effect, improperly reducing the true export
price for the excluded export transactions.

5.54 It is noteworthy that, although the United States
disregards or interferes with the value of certain "comparable" export
transactions, it does not provide any equivalent, counter-balancing compensation
for these actions in the overall comparison of normal value and export price.
The zeroing procedures are designed and structured to operate entirely and
exclusively to the detriment of exporters. Thus, notwithstanding the obligations
assumed by the United States under Article 2 to compare fairly all comparable
transactions, its zeroing procedure for selecting from among the comparable
transactions systematically prejudices exporters.

5.55 The Appellate Body has consistently held that model
zeroing  which operates in the same manner and produces the same
effects as simple zeroing, other than that simple zeroing inflates margins more
 is inconsistent with Articles 2.4 and 2.4.2 of the AD Agreement. As
observed by the Appellate Body, there is an "inherent bias in a zeroing
methodology." This "bias" "could, in some instances, turn a negative margin into
a positive margin of dumping" and may, therefore, "distort not only the
magnitude of a dumping margin, but also [result in] a finding of the very
existence of dumping." In other words, through the zeroing procedures, a finding
of dumping becomes "more likely" and the magnitude of any dumping margin is
systematically "inflated." The Appellate Body has also highlighted that there is
no express language permitting authorities to disregard negative margins and,
therefore, no justification for the "inherent bias" and unfairness in a zeroing
procedure.

5.56 In light of these observations, the Appellate Body
"emphasized that a [zeroing] comparison such as that undertaken by the European
Communities [in EC  Bed Linen] is not a 'fair comparison' between export
price and normal value as required by Articles 2.4 and 2.4.2." The same
reasoning applies to this case. Both model and simple zeroing involve an
"inherent bias" against exporters that cannot be regarded as "fair."

3. Arguments with respect to Articles 3 and 5.8 of the AD Agreement

5.57 Japan submits that model zeroing systematically leads to
a flawed injury determination under Article 3 of the AD Agreement. In
terms of Articles 3.1, 3.2, 3.3, 3.4 and 3.5 of the AD Agreement,
authorities must examine the volume of dumped imports, the volume of non-dumped
imports, the magnitude of the dumping margin, and the impact of the dumped
imports on the domestic industry. However, zeroing overstates the volume of
dumped imports, understates the volume of non-dumped imports, systematically
inflates the dumping margin and the volume of dumped imports, and also distorts
the injury determination. Because the investigating authorities rely on such
inaccurate data, zeroing distorts the determination to be made with respect to
each of these elements. Furthermore, as a result of relying on such inaccurate
data, investigative authorities also fail to terminate investigations in
circumstances where, under Article 5.8, they are required to do so.

4. Additional Arguments on Simple Zeroing

5.58 The simple zeroing operates in the context of periodic
reviews, conducted pursuant to Article 9.3 of the AD Agreement. The
express treaty text states that any dumping margin used for purposes of Article
9.3 must be calculated consistently with Article 2. The Appellate Body has ruled
that dumping margins used for purposes of sunset reviews under Article 11.3 must
be calculated consistently with Article 2.4 of the AD Agreement,
including with the requirement to make a "fair comparison." It added that if
dumping margins used for purposes of a sunset review "were legally flawed
because they were calculated in manner inconsistent with Article 2.4, this could
give rise to an inconsistency not only with Article 2.4, but also with Article
11.3 of the AD Agreement."

5.59 This Appellate Body's ruling must apply a fortiori to
dumping margins calculated and used in reviews under Article 9.3. This is
particularly so because, unlike Article 11.3, Article 9.3 specifically refers to
Article 2. A comparison that does not meet all of the requirements of "fairness"
is not consistent with the "general obligation" in Article 2.4. The requirement
in Article 2.4.2 for the comparison of normal value and export price to include
"all comparable export transactions" is an expression of the "general
obligation" in Article 2.4 to ensure a "fair comparison" for the product as a
whole. If certain export transactions are excluded from the comparison, the
margin ceases to be for the product as a whole and is instead for a particular
part or category of that product. Such a comparison does not provide a "fair"
basis for concluding that the product as a whole is dumped.

5.60 Furthermore, the disregard of, or interference with,
export transactions under the simple zeroing rule operates systematically to the
disadvantage and prejudice of exporters, without any compensating set-off for
this disadvantage in the comparison. The United States is obliged by Article 2.4
to ensure that any selection that it undertakes among comparable transactions is
"fair," treating domestic parties and exporters "even-handedly." The "inherent
bias" in zeroing is inconsistent with these requirements and is, therefore,
inconsistent with Article 2.4. In consequence, simple zeroing is "as such"
inconsistent with Articles 2.4, 2.4.2 and 9.3 of the AD Agreement.

5. "Mandatory  Discretionary" Distinction

5.61 The United States places considerable emphasis
throughout its first written submission on the so-called mandatory 
discretionary "doctrine." Contrary to the United States' view, the case-law
indicates that measures involving discretion may well be WTO-inconsistent. The
Appellate Body indicated that there would be no clear dividing line which
distinguishes mandatory measures from discretionary measures, and discretion to
violate WTO obligations could be WTO-inconsistent.

5.62 As a result, the United States is incorrect to assert
that the mere existence of discretion to comply with WTO law precludes a finding
of WTO-inconsistency. In this dispute, the Panel must examine the nature and
character of the measure at issue, including the evidence of the general
application of the zeroing procedure, to determine whether the measures are "as
such" WTO-inconsistent. As outlined above, that evidence shows prima facie
that the United States generally applies the zeroing procedures, according to
their own terms, in a WTO-inconsistent manner and has done so, at least, since
1993. The mere fact that the United States could alter this rule does not
eliminate the on-going WTO-inconsistency of the rule.

5.63 Furthermore, even assuming, for the sake of arguments, a
mandatory  discretionary analysis were required in this case, the model and
simple zeroing at issue, by their own terms, require WTO-inconsistent action.
First, the zeroing procedure is included in the USDOC standard AD Margin
Calculation Program. The standard "programming procedures" instruct a
mechanistic selection and summing of data that, in terms of the procedures,
afford no possibility to depart from "zeroing." Second, the evidence submitted
by the European Communities of many specific computer programs supports the
conclusion that the United States treats the zeroing procedures a mandatory part
of its administrative procedure because the zeroing procedure has been included
in specific computer programs with the utmost consistency. Third, the expert
testimony submitted by Japan demonstrates that the United States has used the
zeroing procedures, without change, for at least the past twelve years.

5.65 Korea agues that as the Appellate Body has consistently
found zeroing to be prohibited in all anti-dumping proceedings. Indeed,
according to Korea, the Appellate Body has consistently held that zeroing should
be condemned as unfair and prohibited in the original investigation well as
reviews and consequently has found that zeroing is inconsistent with the "fair
comparison" requirements of Articles 2.4 and 2.4.2.103

1. Arguments with respect to Article 2.4

5.66 Korea submits that the "fair comparison" requirement of
Article 2.4 is an overarching and independent obligation which applies to all
dumping calculations. Korea is of the view that a comparison of the text of the
current AD Agreement to the corresponding provision of the Tokyo Round
Antidumping Code suggests that the "fair comparison" requirement of the first
sentence of Article 2.4 was intended to be independent of the provisions in the
subsequent sentences of Article 2.4.

5.67 Contrary to the Tokyo Round Code, which sets out the
"fair comparison" requirement as an introductory clause, the Uruguay Round
Agreement contains a separate and explicit command that a "fair comparison shall
be made," as an independent new first sentence of Article 2.4. In addition, the
position that the "fair comparison" requirement is an independent and
overarching obligation is clearly supported by the language of Article 2.4 since
the "fair comparison" requirement is set forth independently, in the first
sentence of Article 2.4, in language that is not conditioned on the requirements
of the following sentences.

5.68 For these reasons, Korea submits that the "fair
comparison" requirement of Article 2.4 - which applies to all dumping
calculations - provides an independent ground for finding zeroing to be
inconsistent with the AD Agreement.

2. Article 9.3 Proceedings are Part of "the investigation
phase" under Article 2.4.2

5.69 Korea asserts that the periodic review under Article 9.3
is part of "the investigation phase" under Article 2.4.2. According to Korea, in
the US  Corrosion-Resistant Steel Sunset Review case, the Appellate Body
explained that reviews under Article 11 "envision a process combining both
investigatory and adjudicatory aspects."104 Furthermore, the Appellate Body noted
that although it was not necessary for investigating authorities to calculate
dumping margins in sunset reviews, if they chose to do so, their calculation
must be consistent with the requirements of Article 2. Korea submits that the
same logic should apply to periodic reviews for duty assessment under Article
9.3. Thus, in a periodic review, where the United States chooses to calculate a
new dumping margin for the duty assessment, the calculation should be done
without zeroing, consistent with the requirements of Article 2, including the
requirements of Articles 2.4 and 2.4.2.

3. Articles 2.4 and 2.4.2 Apply to Article 9.3
Proceedings

5.70 Korea submits that the text of Article 9.3 explicitly
indicates that the requirements of Articles 2.4 and 2.4.2 must apply to periodic
reviews under Article 9.3. Noting that Article 9.3 explicitly refers to margin
of dumping "as established under Article 2," Korea is of the view that in a
periodic review, a new dumping margin for the duty assessment should be
calculated pursuant to Article 2, including Articles 2.4 and 2.4.2. In addition,
Korea argues that Article 9.3 establishes a basic requirement that "the amount
of anti-dumping duty shall not exceed the margin of dumping as established under
Article 2." If zeroing is permitted in the periodic review for the duty
assessment, then duties would be imposed in excess of "the margin of the dumping
as established under Article 2" due to the use of a methodology that Article
2.4.2 does not permit.

H. MEXICO

1. Zeroing is Prohibited by Article 2.4

5.71 Mexico argues that Article 2.4 of the AD Agreement
establishes the fundamental principle that: "A fair comparison shall be made
between the export price and the normal value". This entails an independent
obligation to determine the relevant dumping margin by using a fair method of
comparison that takes into account sales of all the products under
investigation, which necessarily means that "negative margins" should not be
zeroed.

5.72 The United States zeroing practice is not objective and
impartial and therefore this practice is as such unfair under Article 2.4.
Consequently, zeroing is inconsistent with the obligations of the United States
established under Article 2.4.

2. Zeroing is Prohibited by Article 2.4.2

5.73 The United States model zeroing and simple zeroing
comparison methodologies are inconsistent with Article 2.4.2 because they do not
involve a weighted-average comparison of the prices of all comparable export
transactions. Pursuant to paragraph 55 of Appellate Body's report in the EC 
Bed Linen, case an investigating authority must include in the comparison of
prices it undertakes when calculating a dumping margin all comparable export
transactions, otherwise it would not be making a "fair comparison", something
which would be contrary to the terms of Articles 2.4 and 2.4.2.

3. Article 2.4.2 Applies to Duty Assessment Proceedings

5.74 Article 9 of the AD Agreement provides that the
obligations contained in Article 2 apply to the duty assessment proceedings.
According to Article 9.3 of the AD Agreement, the amount of the
antidumping duty shall not exceed the margin of the dumping as established under
Article 2. That is, Article 9 refers to the whole Article 2, without any
restrictions. It therefore obliges an investigating authority to apply Article
2.4.2 when determining the amount of anti-dumping duties in the corresponding
duty assessment proceedings. In this connection, Mexico is of the view that all
the obligations contained in Article 2 are directly applicable in the context of
United States duty assessment proceedings, since, as established in Article 9.3,
the requirement to determine the amount of an anti-dumping duty (if one is
imposed) at a level that does not exceed the margin of dumping as established
under Article 2 applies equally to retrospective and prospective systems.

5.75 The obligation to make a fair comparison must
necessarily and normally be based on equivalent methodologies, that is to say,
on a symmetrical comparison, a principle set out in Article 2.4, which
establishes that "A fair comparison shall be made between the export price and
the normal value". According to this principle, the AD Agreement
establishes that the methodology involving a comparison of weighted-average
normal values with individual export transactions (i.e. an asymmetrical
comparison) is permitted only if particular conditions, set out in Article 2.4.2
(known as "selective dumping"), are present.

5.76 Contrary to the arguments of the United States, the
obligation of making a "fair comparison" (that is, a symmetrical comparison)
applies to the antidumping duty assessment proceedings, given that as previously
described, Article 2 of the AD Agreement is applicable to those
proceedings.

5.77 The text of AD Agreement Article 9.4, as in
original investigations, expressly restricts the situations in which an
asymmetrical comparison can be made  namely when the investigating authority
uses samples in its investigations and, particularly significantly, when the
amount of anti-dumping duties is determined prospectively, a situation that does
not apply in any circumstance to the United States, given its current laws and
regulations.

5.78 The main aim of the provisions contained in Articles 2
and 9 is to ensure a "fair comparison" consistent with the AD Agreement,
and the exceptions for an asymmetrical comparison methodology are confined to
the circumstances specifically enumerated in the Agreement.

5. The "Standard Zeroing Procedures" are a Measure that
can be Challenged as such

5.79 Pursuant to a dispute settlement proceeding, every act
or omission of a WTO Member can be considered as a "measure". Therefore, there
is no limit about the kind of measures of the United States related to the
zeroing practice that can be subject to a dispute settlement proceeding under
the DSU or the AD Agreement in which its conformity as such with those
Agreements is challenged.

5.80 Mexico considers that the United States rules on
anti-dumping, specifically sections 771(35)(A) and (B) and 777A(d) of the 1930
Tariff Act and section 351.414(c)(2) of the USDOC regulations, are inconsistent
as such with Articles 2.4, 2.4.2, 9.3, 11 and 18.4 of the AD Agreement,
with Articles VI:1 and VI:2 of the GATT 1994 and with Article XVI:4 of
the WTO Agreement.

5.81 The Import Administration Antidumping Manual, the
standard computer programs and the standard anti-dumping margin program are
components of standard zeroing procedures and constitute a part of the overall
structure in which anti-dumping investigations are conducted by the
United States. The United States' investigating authority systematically applies
standard zeroing procedures in all calculations of dumping margins in original
investigations as well as in anti-dumping duty assessment procedures.
Accordingly, the standard zeroing procedures, in practice, are deemed
compulsory. In this light, it is appropriate to review the standard zeroing
procedures, as part of the "measures" challenged in this dispute.

I. NORWAY

1. Zeroing is Prohibited in "Retrospective Assessment
Reviews" under Article 9.3 of the AD Agreement and in "New Shipper
Reviews" under Article 9.5

5.82 Norway submits that the pivotal question, in this case,
is whether Article 2.4, including Article 2.4.2, of the AD Agreement
applies to "retrospective assessment reviews" and "new shipper reviews".

5.83 According to Norway, the Appellate Body has clearly
stated that there is only one method of calculating dumping margins in the AD
Agreement and that is in accordance with the provisions of Article 2.4 
which includes Article 2.4.2. This was most recently stated in the
US  Corrosion Resistant Steel Sunset Review case in connection with the
interpretation of Article 11.3 of the Agreement concerning "sunset reviews".105 In
this case, the Appellate Body recalled its findings in the EC  Bed Linen
case, and stated that:

"When investigating authorities use a zeroing methodology
such as that examined in EC  Bed Linen to calculate a dumping
margin, whether in an original investigation or otherwise, that methodology
will tend to inflate the margins calculated."106

5.84 Norway contends that the word "otherwise" makes it
particularly clear that the findings of the Appellate Body in this case are just
as valid whenever a margin of dumping is calculated, and not just in original
investigations. This is, furthermore, abundantly clear from the chapeau to
paragraph 3 of Article 9, which states that "[T]he amount of the anti-dumping
duty shall not exceed the margin of dumping as established under Article 2."
This creates a clear and unambiguous link between the dumping duty imposed,
reassessed or collected and the disciplines in Article 2 governing the
calculation of dumping margins.

5.85 Norway rejects the argument of the United States that
Article 2.4 applies to periodic reviews, but not to sub-paragraph 4.2, because
of the existence of the word "investigation" in Article 2.4.2. First, the United
States' arguments fail because there is nothing in paragraph 3 of Article 9 that
bars the application of Article 2.4.2. To the contrary, there is a clear
reference to calculations of dumping margins, an issue squarely within Article
2.4.2. Secondly, because the Appellate Body in the EC  Bed Linen case
has interpreted the prohibition on zeroing based not on Article 2.4.2 as such
but on the requirement of a "fair comparison" in Article 2.4. Thirdly, because
what the United States is doing in its duty "reassessment reviews" and "new
shipper reviews" is similar to what it does in original investigations and in
"sunset reviews". For all practical purposes it is a new investigation. If the
reach of Article 2.4.2 is excluded from all but original investigations there
would be no disciplines left to ensure fairly computed dumping margins. This
would be contrary not only to the "fair comparison" requirement, but also to the
Appellate Body's explicit findings in the US  Corrosion Resistant Steel
Sunset Review case.

2. Measures that can be Challenged "as such"

5.86 Norway argues that there are no limitations on the types
of measures that can be challenged as such before a WTO panel. Norway asserts
that guidance on the measures, and types of measures, that can be challenged
before a WTO panel in a case concerning the AD Agreement can be found in
many provisions. For instance, Norway contends that the interpretation of
Article 3.3 of the DSU by the Appellate Body in the US  Corrosion Resistant
Steel Sunset Review case indicates that, in principle, any act or omission
attributable to a WTO Member can be assumed to be a measure by that Member for
the purposes of dispute settlement proceedings.

5.87 The wide reach of the notion of "measure" is also
evident from Article 18.4 of the AD Agreement, which refers not only to
laws or regulations, but also to "administrative procedures" as measures subject
to the disciplines of the AD Agreement. Furthermore, Article 17.3 of the
AD Agreement, which concerns disputes relating to the Agreement,
only makes reference to the "effects" of any action by another Member, and not
to specific types of measures. Indeed, the Appellate Body stated in the US 
Corrosion Resistant Steel Sunset Review case that there is no threshold
requirement in Article 17.3 of the AD Agreement that the measure in
question be of a certain type. In the same ruling the Appellate Body also held
that the provisions of Article 18.4 of the AD Agreement have a certain
relevance in relation to the question of what type of measure may be submitted
to dispute settlement under the agreement. The phrase "laws, regulations and
administrative procedures" in Article 18.4 has been interpreted very broadly to
encompass all generally applicable rules, norms and standards adopted by
Members in connection with anti-dumping proceedings.

3. The Anti-Dumping Margin Program is a Challengeable "as
such" Measure

5.88 Norway is of the view that the anti-dumping margin
program is a norm or standard adopted by the United States in connection with
the conduct of anti-dumping proceedings. The fact that the zeroing procedures in
the anti-dumping margin program are abstract; that they not published in the
Federal Register; that they do not bear the title "law" or "regulation"; that
they are not adopted by Congress but by the US Department of Commerce; that the
Department is entitled to change or withdraw them for the purposes of future
determinations; and that they are not relevant in US courts, cannot be decisive
for whether these procedures are a "measure" for the purpose of anti-dumping
proceedings.

5.89 Norway believes that the anti-dumping margin program and
the procedures it contains may be a set of normative rules that apply
mechanistically and automatically to a given set of facts without further human
intervention. There is no room for administrative or judicial interpretation.
The effect of the standard zeroing procedures in future cases is utterly
predictable. The "Standard Zeroing Procedures" in the anti-dumping margin
program provide certainty and security (at least for US industry) for the
conduct of future trade. They mandate zeroing in all cases, and continue to do
so until changed.

5.90 Even if one were to accept the contention of the United
States that the anti-dumping margin program is not a measure in itself but only
the implementation of "rules or norms adopted by a decision-maker in some other
instrument, such as a regulation or a determination in a specific antidumping
proceeding", they would still be challengeable. This is because an implementing
measure is as challengeable as the law or regulation from which it is derived.

5.91 For the above reasons, the anti-dumping margin program
containing the standard zeroing procedures is a "challengeable" measure under
WTO law as such.

4. The Anti-Dumping Margin Program is inconsistent with
the AD Agreement

5.92 The Appellate Body has clearly stated that there is only
one method of calculating dumping margins in the AD Agreement and that is
in accordance with the provisions of Article 2.4 of the Agreement. By virtue of
the fact that Article 2 is also applicable to assessment reviews under
Article 9.3 and to "new shipper reviews" under Article 9.5, it follows that
zeroing is prohibited.

5.93 The anti-dumping margin program is a measure that can be
challenged "as such" in a WTO dispute. Thus the anti-dumping margin program
containing the standard zeroing procedures is in violation of Article 2.4 of the
AD Agreement and in particular Article 2.4.2, as well as all other
articles concerning the calculation of dumping margins.

5.94 The calculation of dumping margins has a bearing on the
assessment that must be made under a number of the provisions of the AD
Agreement, including Articles 3.1, 3.2, 3.5, 11.1, 11.2, 11.3, 9.3, 1, 18.4.
When the United States "Standard Zeroing Procedures" in the anti-dumping margin
program are in violation of Article 2.4, this will therefore, in turn, lead to a
number of consequential inconsistencies.

J. TURKEY

1. Model Zeroing is Inconsistent with Articles 2.4 and
2.4.2 of the AD Agreement

5.95 Turkey asserts that the model zeroing method used by the
United States in determining the dumping margin in original investigations leads
to an unfair comparison of normal value and export price within the meaning of
Articles 2.4 and 2.4.2 of the AD Agreement. This contention is supported
by the Panel and Appellate Body decisions in the EC  Bed Linen case. In
that dispute, the Panel decided that establishing the existence of margins of
dumping on the basis of a methodology, which included zeroing negative price
differences, calculated for some models (model zeroing methodology) was
inconsistent with Article 2.4.2 of the AD Agreement. Furthermore, the
Panel noted that, in arriving at a conclusion whether the product as a whole is
being dumped, Article 2.4.2 obligates an investigating authority to make its
determination in a way which fully accounts for the export prices on all
comparable transactions. Thus, the Panel found the methodology, which focuses on
those models that are dumped, and takes less than full account of those models
where the comparison results in a negative margin, to be inconsistent with
Article 2.4.2 of the Agreement. The Appellate Body in the EC  Bed Linen
case, further stated that, regardless of the method used to calculate the
margins of dumping, these margins must be, and can only be, established for the
product under investigation as a whole.

2. Recourse to Simple Zeroing Should Be an Exception

5.96 The text of Article 2.4.2 recognizes three different
methodologies for dumping margin calculations. The comparison of a weighted
average normal value with a weighted average of prices of all comparable export
transactions and the comparison of normal value and export prices on a
transaction-to-transaction basis are both identified as the normal way of
calculation, whereas the comparison of weighted average normal value with prices
of individual export transactions is identified as an exception. Thus, at the
outset, it is clear that simple zeroing is not expressly prohibited in the text
of the said Article. Furthermore, if simple zeroing was prohibited then it would
render meaningless the inclusion of the exceptional calculation method in the
Article since the result of both comparisons, that is the weighted average
normal value to weighted average export transactions comparison and the weighted
average normal value to prices of individual export transactions comparison,
would lead to the same result.

5.97 On the other hand, the main purpose of Article 2.4.2 of
the AD Agreement is to provide for an exception (asymmetrical comparison
in the case of targeted dumping) to the normal methods of comparison
(symmetrical comparison) in order to ensure a fair comparison within the meaning
of Article 2.4 of the AD Agreement. Yet, the application of this
exception is expressly tied to the existence of certain conditions. If the
investigating authority is to calculate a dumping margin in a way other than the
two normal methods, then, pursuant to Article 2.4.2, it should perform a
targeted dumping analysis. Should the authority find such targeting; it should
explain why such differences could not be taken into account appropriately by
the use of a weighted average-to-weighted average or transaction-to-transaction
comparison.

5.98 In this respect, although the AD Agreement does
not prohibit simple zeroing, recourse to such application should be an
exception, not a standard procedure and the conditions that call for it should
be clearly examined and explained. Thus, the standard zeroing methodology as
applied in periodic reviews by the United States is inconsistent with the
provisions of Articles 1, 2.4, 2.4.2, 9.3, 11.1, 11.2 and 18.4 of the AD
Agreement.

3. Dumping Determinations for the Purposes of Article
11.2 of the AD Agreement

5.99 Article 2 defines dumping along with the methodologies
to be used in the determination of dumping margin. Turkey contends that the
provisions covered by this Article should apply to all types of investigations,
including reviews, where a dumping margin is to be calculated. Thus, in view of
the fact that there exists no other provision on how to calculate the dumping
margin for the purposes of Article 11.2 reviews, the investigating authorities
should also abide by the provisions of Article 2.

4. Consistency with Provisions of the AD Agreement

5.100 In Turkey's view, where dumping margin calculation in
an investigation or review is established under a methodology that leads to the
violation of the relevant provisions of the AD Agreement, the Regulation
that establishes the basis for implementing such methodology should also be
found to be inconsistent with the AD Agreement.

5.101 It is without doubt that the signatory Members to the
Agreement Establishing the WTO commit themselves to abide by the rules and
procedures of the WTO Agreements. The presence of such commitment provides
security and predictability for the proper functioning of the multilateral
trading system. In this respect, domestic laws of the Members that implement the
WTO Agreements must be compatible with the requirements of the relevant
Agreements. Otherwise, the WTO Agreements and the multilateral trade system
would prove unnecessary since Members might adopt legislation with completely
different obligations. This would inevitably result in chaos and
unpredictability in the international environment. However, this should not be
interpreted as to say that Members are precluded of having domestic
legislations. On the contrary, the WTO Agreements put forward general principles
of application and in most instances they do not describe the procedures to be
followed to act consistently with those principles. Thus, domestic legislation
is essential in those instances where they help to describe procedures and rules
that should be followed in order to be compatible with the Agreements. Yet, the
balance should be well established. The provisions of the domestic legislations
should not contradict with the provisions of the WTO Agreements nor nullify the
benefits accruing to the Members under the WTO Agreements.

6.1 The Panel submitted its Interim Report to the parties on
4 August 2005. On 26 August 2005, both parties requested that the Panel revise
precise aspects of the Interim Report. Neither party requested an interim review
meeting. On 12 September 2005, both parties submitted comments on the other
party's request for interim review. The Panel has carefully addressed the
arguments made by the parties in their requests for interim review and addresses
them below, in accordance with Article 15.3 of the DSU.107

A.
COMMENTS BY THE EUROPEAN COMMUNITIES

1. Request for explanation of the legal reasoning of the
Appellate Body in EC  Bed Linen and US  Softwood Lumber V

6.2 Regarding the finding of the Panel in paragraph 7.32 of
the Report that USDOC acted inconsistently with Article 2.4.2 of the AD
Agreement in the anti-dumping investigations at issue, the European
Communities considers that the Report should "faithfully explain" the legal
reasoning underlying the findings in the two Appellate Body reports referred to
by the Panel (EC  Bed Linen and US  Softwood Lumber V). The
United States opposes this request.

6.3 Bearing in mind that the precise issue addressed in this
part of the Report  the application of model zeroing when using an
average-to-average comparison in original investigations- has already been the
subject of detailed analysis and findings in two previous dispute settlement
proceedings, we remain of the view that paragraphs 7.26-7.31 provide a
sufficient explanation of our finding in paragraph 7.32 that USDOC acted
inconsistently with Article 2.4.2 of the AD Agreement. We note that
footnote 127 of the Report refers to the precise sections of the Appellate Body
reports that contain the reasoning of the Appellate Body. The European
Communities argues that an explanation by this Panel of the legal reasoning of
the Appellate Body in EC  Bed Linen and US  Softwood Lumber V
"might... help the reader of the report to properly understand the full
implications of those findings". In our view, the kind of explanation suggested
by the European Communities would go beyond what is necessary to decide the
issue raised by this particular claim of the European Communities regarding the
application of model zeroing in certain anti-dumping investigations. We
therefore see no reason to amend our Report as suggested by the European
Communities.

2. Request for a finding with respect to the claim of the
European Communities regarding "automatic assessment"

6.4 The European Communities argues that not all its "as
applied" claims relating to original investigations under provisions other than
Articles 2.4.2 and 2.4 of the AD Agreement are consequential, and refers
in particular to its claim that the "automatic assessment" of liability in the
sample case is inconsistent with Article 9.3. The European Communities also
considers that the United States has not contested this claim. Thus, in the view
of the European Communities, the Panel "has no legal alternative but to find
that model zeroing in an assessment is inconsistent with" Article 9.3. The
United States opposes this request.

6.5 As we understand it, the issue raised by the European
Communities regarding "automatic assessment" pertains to a claim under Article
9.3 of the AD Agreement concerning situations in which, as a result of
the absence of a request for administrative review, USDOC assessed the amount of
anti-dumping duty in an amount corresponding to the margin of dumping determined
in the original investigation.108 As explained in paragraph 7.12 of the Report, we
have treated this claim as a dependent claim on the grounds that it alleges a
breach of a provision as a consequence of the alleged violations of Articles 2.4
and 2.4.2 of the AD Agreement. This characterization is based on the
express language used by the European Communities in paragraph 94 of its First
Submission, where it states that the United States acted inconsistently with
Article 9.3 "as a consequence of the unlawful zeroing method described in this
submission". It is clear from paragraph 95-96 that the key argument in support
of this claim is that as a result of the use of an "inflated" margin of dumping
as the basis of the assessment of the amount of anti-dumping duty, the amount of
anti-dumping duty exceeded the margin of dumping as established under Article 2.
There is no argumentation that Article 9.3 is violated other than as a result of
a violation of other provisions of the AD Agreement. Against this
background, we see nothing in the request by the European Communities for
interim review that substantiates the assertion that its "as applied" claim
under Article 9.3 is not consequential.

6.6 We consider that paragraph 7.34 of the Report and the
accompanying footnote 134 sufficiently explain why we do not consider it
necessary to make findings on the dependent claims raised by the European
Communities, including its claim under Article 9.3 of the AD Agreement.
The key consideration, as stated in that paragraph, is that deciding dependent
claims will not provide additional guidance as to the steps to be undertaken by
the United States in order to implement the Panel's recommendation regarding the
violation on which the recommendation is dependent. The interim review request
of the European Communities contains no argumentation that calls into question
the logic of that reasoning. We also note that in footnote 134 we have drawn
attention to recent panel reports that have adopted the same approach with
respect to the treatment of dependant claims. Particularly noteworthy in this
context is the panel report in US  Softwood Lumber V. After finding that
model zeroing in an original investigation is inconsistent with Article 2.4.2 of
the AD Agreement, that panel declined to make a finding on a claim that
zeroing is also inconsistent with Article 9.3 of the AD Agreement based
on the reasoning articulated in paragraph 7.34 of our Report. In light of these
considerations, we have decided not change our Report as proposed by the
European Communities.

3. Request for a revision of the Panel's reasoning
regarding zeroing as a methodology

6.7 The European Communities disagrees with what it
characterizes as the conclusion of the Panel that the standard zeroing
procedures "do not exist in written form". The United States opposes this
request.

6.8 Although the European Communities does not make reference
to a particular paragraph of the Report, we believe that this comment pertains
to paragraph 7.104 where we state that there is a zeroing methodology which is
manifested in the Standard Zeroing Procedures and which represents a
well-established and well-defined norm but which "is not expressed in writing".
Thus, strictly speaking, we have not stated that the "Standard Zeroing
Procedures do not exist in written form" but that the zeroing methodology itself
"is not expressed in writing". The European Communities does not submit any
factual or legal arguments to explain why it considers that the Panel erred in
making this statement. We therefore have not changed the Report in this respect.

4. Request for a finding by the Panel on the claim of the
European Communities under Article 2.4 of the AD Agreement

6.9 In its interim review comments, the European Communities
requests the Panel to make a finding on its claims that the use of zeroing in
original investigations is inconsistent with Article 2.4 of the AD Agreement.109
The European Communities considers that a decision on whether and to what extent
the zeroing practice is violating Article 2.4, in particular the independent and
overarching obligation contained in the first sentence thereof, in the context
of original investigations, is essential to give the United States the guidance
it needs in order to bring its measures into conformity with the AD Agreement.
The United States opposes this suggestion.

6.10 We have explained in paragraph 7.33 of the Report why,
having found that the use of model zeroing in the investigations at issue is
inconsistent with Article 2.4.2 of the AD Agreement, we do not consider
it necessary to examine whether the use of model zeroing in these investigations
is also inconsistent with Article 2.4. We consider that this approach is within
our discretion to exercise judicial economy. The fundamental consideration
regarding the appropriateness of the exercise of judicial economy in WTO dispute
settlement is that a panel only needs "to address those claims on which a
finding is necessary in order to enable the DSB to make sufficiently precise
recommendations and rulings so as to allow for prompt compliance by a Member
with those recommendations and rulings".110 In our view, in determining whether or
not to exercise judicial economy, we must determine whether a finding requested
by a party is necessary to decide those specific claims that are actually before
us. In the present case, the European Communities has raised the same issue
under Articles 2.4.2 and 2.4 of the AD Agreement, namely the lawfulness
of model zeroing in the context of average-to-average comparisons between export
price and normal value in original investigations. While the interim review
request of the European Communities asserts that a finding by the Panel under
Article 2.4 is essential, it does not advance any argument demonstrating that
action by the United States to remove the inconsistency with Article 2.4.2 would
not at the same time also remove the alleged inconsistency with Article 2.4 of
the AD Agreement. Thus, it remains our view that a DSB recommendation
based on our finding of inconsistency of the application of zeroing with Article
2.4.2 is sufficiently precise. We also note that, as described in footnote 133
of the Report, other panel reports have also refrained from making findings on
whether zeroing is inconsistent with Article 2.4 after finding that zeroing is
inconsistent with Article 2.4.2. In sum, the European Communities has not
provided any cogent argument to demonstrate that we erred in deciding to
exercise judicial economy with respect to its claims under Article 2.4, and we
disagree with the European Communities that in the present case a decision on
Article 2.4 is somehow essential. Thus, we have not made any changes to the
Report in this respect.

B. COMMENTS BY THE UNITED
STATES

1. Request for changes to paragraph 2.5 of the Report

6.11 The United States requests that we insert the word
"dumped" before "amount" in the second and third sentences of paragraph 2.5 of
the Report. The United States further requests that we replace "customs" with
"US Bureau of Customs and Border Protection ('USCBP')" in the seventh sentence
of paragraph 2.5 and that we substitute "USCBP" for "customs" in the next
sentence. The European Communities agrees. We have decided to accept these
changes, which we regard as being of a purely editorial nature.

2. Request for changes to paragraph 2.6 of the Report

6.12 The United States requests the Panel to replace
paragraph 2.6 of the Report with paragraph 2.4 of the original draft descriptive
part of the Report. The United States objects in particular to the inclusion in
this paragraph of references to three kinds of "measures": (1) the Issues and
Decision Memoranda; the (2) Final Margin Program Logs and Outputs; and (3)
assessment instructions. The United States considers that these three measures
are not part of the request for establishment of a panel. The European
Communities objects to the amendments suggested by the United States.

6.13 When read in light of the relevant paragraphs of the
First Written Submission of the European Communities, as referred to in
footnotes 21 and 22 of the Report, it is clear to us that paragraph 2.6 of the
Report does not treat the Issues and Decision Memoranda, the Final Margin
Program Logs and Outputs, and the assessment instructions as three separate
categories of measures but as aspects of the measures at issue.111 Thus, paragraph
2.6 of our Report does not imply that we are presented with a request for
separate findings on the Issues and Decision Memoranda, the Final Margin Program
Logs and Outputs and the assessment instructions. While it is certainly true
that there is no express mention of these "measures" in the request for the
establishment of a panel, they clearly form part of the measures mentioned in
that document.112 Therefore, we have not made the change requested by the United
States.

3. Request for changes to paragraph 7.67 of the Report

6.14 The United States requests that the Panel delete the
second sentence and the first part of the third sentence of paragraph 7.67 of
the Report. The United States considers that the second sentence can be read to
imply that Appellate Body reports constitute sources of WTO law and that the
Panel's statement in footnote 167 of the Interim Report on the Sunset Policy
Bulletin is unclear. The European Communities objects to these changes proposed
by the United States but suggests that the issue raised by the United States
regarding the second sentence of paragraph 7.67 can perhaps be addressed by
substituting "understood" for "interpreted".

6.15 To accommodate the concern of the United States
regarding the possible implications of the statement in the second sentence of
paragraph 7.67, we have slightly redrafted that sentence and have deleted
footnote 167 of the Interim Report. However, we see no reason to delete or amend
the first part of the third sentence of paragraph 7.67.

6.16 Finally, in addition to the above-mentioned changes, we
have corrected a number of typographical errors in the Interim Report.

(a) In the cases and measures listed in Exhibits EC-1
to EC-15, the United States acted inconsistently with (1) Articles 2.4
and 2.4.2; 3.1, 3.2 and 3.5; 5.8; 9.3; 1 and 18.4 of the AD Agreement,
(2) Articles VI:1 and VI:2 of the GATT 1994 and (3) Article XVI:4 of the
WTO Agreement by setting at zero negative margins when aggregating the
intermediate results of comparisons between averaging groups for the
purposes of calculating the margin for the subject product.

(b) The "Standard Zeroing Procedures" used by the
United States in original investigations (or the US practice or
methodology of zeroing) and Sections 771(35)(A) and (B), 731 and
777(A(d) of the Tariff Act are as such inconsistent with: (1) Articles
2.4 and 2.4.2; 5.8; 9.3; 1 and 18.4 of the AD Agreement; (2)
Articles VI:1 and VI:2 of the GATT 1994; and (3) Article XVI:4 of the
WTO Agreement.

(c) In the cases and measures listed in Exhibits
EC-16 to EC-31, the United States acted inconsistently with: (1)
Articles 2.4 and 2.4.2; 9.3; 11.1 and 11.2; 1 and 18.4 of the AD Agreement; (2) Articles VI:1 and VI:2 of GATT 1994; and (3)
Article XVI:4 of the WTO Agreement by comparing a weighted average
normal value with individual export transactions, without explanation or
justification, and by setting at zero negative margins when aggregating
the intermediate results of such comparisons for the purposes of
calculating the margin of dumping for the subject product.

(d) The "Standard Zeroing Procedures" used by the
United States in periodic reviews (or the US practice or methodology of
zeroing), Sections 771(35)(A) and (B), 731, 777A(d) and 751(a)(2)(A)(i)
and (ii) of the Tariff Act and Section 351.414(c)(2) of USDOC's
Regulations are as such inconsistent with (1) Articles 2.4; 2.4.2; 9.3;
11.1 and 11.2; 1 and 18.4 of the AD Agreement, (2)Articles VI:1 and VI:2 of the GATT 1994 and (3) Article XVI:4 of the WTO
Agreement.

(e) The "Standard Zeroing Procedures" used by the
United States in new shipper reviews, changed circumstances reviews and
sunset reviews (or the US practice or methodology of zeroing), Sections
771(35)(A) and (B), 731, 777A(d) and 751(a)(2)(A)(i) and (ii) of the
Tariff Act and Section 351.414(c)(2) of USDOC's Regulations are as such
inconsistent with (1) Articles 2.4 and 2.4.2; 9.3 and 9.5; 11.1, 11.2
and 11.3; 1 and 18.4 of the AD Agreement; (2) Articles VI:1 and
VI:2 of the GATT 1994 and (3)Article XVI:4 of the WTO Agreement.

7.2 The European Communities requests that the Panel
recommend that the United States take the steps necessary to bring its measures
into conformity with the cited WTO provisions.

7.3 The United States requests that the Panel reject
the claims of the European Communities.

7.4 Article 11 of the DSU provides the standard of review for
WTO panels in general. Article 11 imposes upon panels a comprehensive obligation
to make an "objective assessment of the matter", an obligation which embraces
all aspects of a panel's examination of the "matter", both factual and legal.114

7.5 Article 17.6 of the AD Agreement sets forth the
special standard of review applicable to disputes under the AD Agreement:

(i) in its assessment of the facts of the matter, the
panel shall determine whether the authorities' establishment of the
facts was properand whether their evaluation of those facts was
unbiased and objective. If the establishment of the facts was proper and
the evaluation was unbiased and objective, even though the panel might
have reached a different conclusion, the evaluation shall not be
overturned;

(ii) the panel shall interpret the relevant
provisions of the Agreement in accordance with customary rules of
interpretation of public international law. Where the panel finds that a
relevant provision of the Agreement admits of more than one permissible
interpretation, the panel shall find the authorities' measure to be in
conformity with the Agreement if it rests upon one of those permissible
interpretations.

Thus, taken together Article 11 of the DSU and Article 17.6
of the AD Agreement establish the standard of review this Panel must
apply with respect to both the factual and the legal aspects of the present
dispute.

2. Rules of Treaty Interpretation

7.6 Article 3.2 of the DSU provides that the dispute
settlement system serves to clarify the provisions of the covered agreements "in
accordance with customary rules of interpretation of public international law".
It is generally accepted that these customary rules are reflected in Articles
31-32 of the Vienna Convention on the Law of Treaties. Article 31(1) of
the Vienna Convention provides:

"A treaty shall be interpreted in good faith in
accordance with the ordinary meaning to be given to the terms of the treaty
in their context and in the light of its object and purpose".

7.7 In the context of disputes under the AD Agreement,
the Appellate Body has stated that:

"The first sentence of Article 17.6(ii),
echoing closely Article 3.2 of the DSU, states that panels 'shall'
interpret the provisions of the AD Agreement 'in accordance with
customary rules of interpretation of public international law.' Such
customary rules are embodied in Articles 31 and 32 of the ViennaConvention
on the Law of Treaties ('Vienna Convention'). Clearly, this
aspect of Article 17.6(ii) involves no 'conflict' with the DSU but, rather,
confirms that the usual rules of treaty interpretation under the DSU also
apply to the AD Agreement.

The second sentence of Article 17.6(ii)
presupposes that application of the rules of treaty
interpretation in Articles 31 and 32 of the Vienna Convention
could give rise to, at least, two interpretations of some provisions of the
AD Agreement, which, under that Convention, would both be 'permissible
interpretations.' In that event, a measure is deemed to be in conformity
with the AD Agreement 'if it rests upon one of those permissible
interpretations."115

Thus, it is clear that under the AD Agreement, we are
to follow the same rules of treaty interpretation as in any other dispute. The
difference is that if we find more than one permissible interpretation of a
provision of the AD Agreement, we may uphold a measure that rests on one
of those interpretations.

3. Burden of Proof

7.8 The general principles applicable to burden of proof in
WTO dispute settlement require that a party claiming a violation of a provision
of the WTO Agreement by another Member assert and prove its claim.116 The European
Communities as the complaining party must therefore make a prima facie
case of violation of the relevant provisions of the relevant WTO agreements,
which the respondent must refute. We also note, however, that it is generally
for each party asserting a fact, whether complainant or respondent, to provide
proof thereof.117 In this respect, therefore, it is also for the United States to
provide evidence for the facts which it asserts. We also recall that a prima
facie case is one which, in the absence of effective refutation by the other
party, requires a panel, as a matter of law, to rule in favour of the party
presenting the prima facie case.

C. CLAIMS
OF THE EUROPEAN COMMUNITIES IN RESPECT OF CERTAIN ORIGINAL INVESTIGATIONS118

1. Measures at issue

7.9 The European Communities claims that the United States
has acted inconsistently with its WTO obligations in 15 anti-dumping
investigations listed in Exhibits EC-1 to EC-15119 because USDOC, when calculating
the weighted average dumping margin for exporters/manufacturers of the product
subject to investigation on the basis of multiple comparisons between average
export prices and average normal values within "averaging groups"120 consisting of
merchandise that was identical or virtually identical in all physical
characteristics, included in the numerator used to calculate the weighted
average dumping margin only the results of those comparisons in which average
export prices were below average normal values. The European Communities uses
the term model zeroing to refer to this exclusion from the numerator of the
weighted average dumping margin of any amounts by which average export prices
within individual averaging groups based upon physical characteristics exceeded
average normal values.

7.10 In the latter regard, we note that the parties to this
dispute disagree on the appropriate terminology to describe this aspect of the
dumping margin calculation methodology of USDOC. The United States rejects the
term model zeroing used by the European Communities as being without any textual
basis in the AD Agreement or in the anti-dumping laws and regulations of
the United States. On the other hand, the European Communities contests that, as
argued by the United States, the issue before the Panel is properly
characterized in terms of whether or not an investigating authority must "grant"
an "offset" or "credit" for "negative dumping". It is important to emphasize in
this respect that where this Report uses the terms employed by the parties, this
should not necessarily be seen as an acknowledgement by the Panel of the legal
relevance of those terms under the AD Agreement.

7.11 As explained by the European Communities, USDOC's
Regulations also provide for the possibility to establish averaging groups based
on other factors, e.g. level of trade. While the claims of the European
Communities regarding the original investigations at issue pertain specifically
to model zeroing i.e. zeroing in the context of averaging groups established on
the basis of physical characteristics, the claims of the European Communities
that "Standard Zeroing Procedures" and certain provisions of the United States'
anti-dumping legislation are WTO-inconsistent as such are broader in scope in
this respect and concern the use of zeroing in the context of any type of
averaging group. We consider that the specific criterion used in establishing an
averaging group is of no particular relevance to our legal analysis and that our
reasoning with respect to model zeroing is equally applicable to the use of
zeroing in relation to averaging groups established on the basis of factors
other than physical characteristics.

2. Order of analysis

7.12 The European Communities presents claims regarding the
WTO-inconsistency of the application of model zeroing in the subject
anti-dumping investigations under: (1) Articles 1, 2.4 and 2.4.2, 3.1, 3.2, 3.5,
5.8, 9.3 and 18.4 of the AD Agreement; (2) Articles VI:1 and VI:2 of the
GATT 1994; and (3) Article XVI:4 of the WTO Agreement. There is a clear
distinction between the claims of the European Communities under Articles 2.4
and 2.4.2 of the AD Agreement and the claims under the other WTO
provisions invoked by the European Communities in that the alleged breach of
these other provisions is a consequence of the alleged violation of Articles 2.4
and 2.4.2 of the AD Agreement.121 Because of this difference between
"independent" claims under Articles 2.4 and 2.4.2 and "dependent" claims under
other WTO provisions, we commence our analysis with the claims of the European
Communities under Articles 2.4 and 2.4.2 of the AD Agreement.

7.13 Regarding the order in which we should take up the
claims of the European Communities under Articles 2.4 and 2.4.2 of the AD
Agreement, we consider that a panel is entitled to structure its analysis in
a manner most appropriate to facilitate the analysis of the issues presented to
it. In this respect, we note that Article 2.4.2 expressly deals with the
question of how export price and normal value must be compared for purposes of
establishing the existence of margins of dumping during the investigation phase.
Article 2.4 requires Members to make a fair comparison between export price and
normal value and contains rules on allowances that must be made to this end but
does not expressly address the issue of the establishment of margins of dumping.
In contrast, Article 2.4.2 addresses the issue of the establishment of margins
of dumping specifically. Moreover, several panel and Appellate Body reports have
made findings under Article 2.4.2 with respect to claims concerning the
methodology for calculating margins of dumping. While the Appellate Body has in
some cases expressed views on the implications of the "fair comparison" language
in Article 2.4 for the calculation of margins of dumping, to date no panel or
Appellate Body report has actually made findings under Article 2.4 with respect
to a claim concerning the calculation of margins of dumping. For these reasons,
we decide to examine first the claim of the European Communities that the model
zeroing methodology employed by USDOC in the subject investigations is in breach
of Article 2.4.2 of the AD Agreement.

3. Claim of the European Communities under Article 2.4.2
of the AD Agreement

(a) Arguments of the parties

7.14 The European Communities, referring to the
Appellate Body report in EC  Bed Linen and the panel and Appellate Body
reports in US  Softwood Lumber V, submits that since Article 2.1 of the
AD Agreement defines "dumping" in relation to a product, the term
"margins of dumping in Article 2.4.2 applies to the product subject to
investigation as a whole and not to models, types or categories of a product.
Intermediate margins calculated by the USDOC in respect of particular models are
not margins of dumping within the meaning of Article 2.4.2. Having defined the
product subject to investigation, USDOC was bound by its own logic and should
have determined a margin of dumping in conformity with Article 2.4.2 for the
product as a whole. Thus, USDOC, which correctly compared a weighted average
normal value to a weighted average export price of all transactions within
individual averaging groups, including export prices above normal value, should
also have incorporated "negative margins" of particular averaging groups when it
calculated a margin of dumping for the product as a whole. The European
Communities asserts that this interpretation is supported by the fact that
Article 2.4.2 requires a simple comparison between export price and normal
value, and that any difference between export price and normal value, whether
positive or negative, is a "margin" for purposes of Article 2.4.2. The European
Communities also recalls that the Appellate Body reports in EC  Bed Linen
and US Softwood Lumber V reject the view that where a margin of
dumping is calculated on the basis of comparisons between export price and
normal value in individual averaging groups, Article 2.4.2 only applies to the
comparisons within these groups and not to the subsequent aggregation of these
results into an overall margin.122

7.15 The United States disagrees that the term
"margins of dumping" in Article 2.4.2 of the AD Agreement can only apply
to the product under investigation as a whole, and not to a product type, model
or category. The GATT 1994 and the AD Agreement demonstrate that the
drafters used the term "margin of dumping" to refer both to the results of
particular comparisons between normal value and export price and to the overall
results of those comparisons.123 The United States considers that the Appellate
Body erred in finding, in US  Softwood Lumber V, that the AD
Agreement requires Members, in the investigation phase, to calculate and
give credit for weighted average comparisons when the export price exceeds the
normal value. First, it is factually incorrect to contend that USDOC "excludes"
non-dumped transactions from the calculation of an overall margin of dumping
under the average-to-average comparison method used in the investigation phase
because, taken together, the averaging groups comprise all comparable export
transactions and because all export transactions are included in the figure by
which the aggregate amount of dumping is divided. Second, Article 2.4.2
restricts the use of the average-to-transaction comparison method in the
investigation phase but does not address the offsetting of negative dumping. The
negotiating history of Article 2.4.2 demonstrates that negotiators were only
able to reach a limited agreement on the issue of "asymmetry" and that the issue
of zeroing was raised but ultimately not addressed. Moreover, the concept of
negative margins is without textual support in Article VI of the GATT 1994 or
the AD Agreement. In the context of Article VI of the GATT 1994 and the
AD Agreement, the term "margin of dumping" refers to the amount by which
normal value exceeds the export price. Article 2.4.2 does not in any way modify
this meaning of "margin of dumping" and contains no reference to the concept of
negative margins of dumping. Since Article 2.4.2 contains no obligation to
calculate an overall margin of dumping, let alone any obligations detailing the
manner in which such a calculation must be performed, it cannot serve as the
basis for finding a requirement to offset negative dumping.124

(b) Arguments of third parties

7.16 Argentina agrees with the European Communities
that the use of model zeroing by USDOC in original investigations is
inconsistent with Article 2.4.2 because, as the Appellate Body found in EC 
Bed Linen and US  Softwood Lumber V, zeroing fails to take into
account all transactions used to serve as the basis for the determination of the
existence dumping.

7.17 Hong Kong, China submits that the Appellate Body
has already held in EC  Bed Linen and US  Softwood Lumber V that
the use of the model zeroing methodology in the context of a weighted-average-to
weighted average comparison between export price and normal value is
inconsistent with Article 2.4.2 because by using such a methodology an authority
fails to establish an overall margin of dumping for the product under
investigation on the basis of all comparable export transactions.

7.18 Japan submits that, as held by the Appellate Body
in EC  Bed Linen and US  Corrosion-Resistant Steel Sunset Review,
both model zeroing and simple zeroing are inconsistent with the "fair
comparison" requirement contained in Articles 2.4 and 2.4.2. Specifically with
regard to Article 2.4.2, Japan notes in this connection that zeroing amounts to
a failure to take into account prices of all comparable export transactions.

7.19 India submits that, as found by the Appellate
Body in EC  Bed Linen, model zeroing is inconsistent with the "fair
comparison" required by Articles 2.4 and 2.4.2 because it means that an
authority does not fully take into account the prices of all comparable export
transactions.

7.20 Korea submits that the decisions of the Appellate
Body in EC  Bed Linen, US  Corrosion-Resistant Steel Sunset Review and
US  Softwood Lumber V make it clear that zeroing is inconsistent with
Articles 2.4 and 2.4.2 of the AD Agreement because it involves a failure
to take into account all comparable export transactions.

7.21 Mexico argues that model zeroing as used by USDOC
in original investigations is inconsistent with Article 2.4.2 of the AD
Agreement because USDOC failed to fully take account of prices of all
comparable export transactions. USDOC thereby also failed to make a fair
comparison, as required by Article 2.4.

7.22 Norway submits that the prohibition against
zeroing in original investigations (and in reviews under Article 11.3 of the
AD Agreement) has already been established by the Appellate Body in EC 
Bed Linen, US  Corrosion-Resistant SteelSunset Review and
US  Softwood Lumber V.

7.23 Turkey argues that the model zeroing method used
by the United States in determining the dumping margin in original
investigations leads to an unfair comparison of export price and normal value
within the meaning of Articles 2.4 and 2.4.2 of the AD Agreement. Turkey
refers in this regard to the panel and Appellate Body ruling in EC  Bed
Linen that Article 2.4.2 requires authorities to take full account of prices
of all comparable export transactions and that margins of dumping can only be
established for the product under investigation as a whole.

(c) Evaluation by the Panel

7.24 In the anti-dumping investigations at issue in the
present dispute125 USDOC first compared normal values and export prices for
individual models of the subject product. For each model, a weighted average
normal value was compared to a weighted average of prices of all export
transactions, which, by definition, included export prices of individual
transactions that were above normal value. USDOC then aggregated the results of
these model-specific weighted-average-to-weighted average comparisons into an
overall dumping margin for the product under investigation for each
exporter/manufacturer. In so doing, USDOC did not include in the numerator used
to calculate the overall dumping margin the results of those comparisons where
the weighted-average export price of a model exceeded its weighted-average
normal value. It is not in dispute that USDOC included all export transactions
in the denominator of this overall dumping margin calculation.

7.25 The European Communities does not challenge the use of
multiple averaging per se i.e. the making of separate comparisons between
export prices and normal values for individual models.126 Nor does it contest any
aspect of the manner in which the model-specific comparisons of export prices
and normal value were made. Rather, the European Communities challenges the
manner in which USDOC aggregatedthe results of those comparisons
for purposes of determining an overall margin of dumping for the product subject
to investigation. Specifically, theEuropean Communities claims that "the
setting at zero" or zeroing of the results of comparisons in which
weighted-average export prices were above weighted-average normal values
is inconsistent with Article 2.4.2 of the AD Agreement.

7.26 Article 2.4.2 of the AD Agreement provides:

"Subject to the provisions governing fair comparison in
paragraph 4, the existence of margins of dumping during the investigation
phase shall normally be established on the basis of a comparison of a
weighted average normal value with a weighted average of prices of all
comparable export transactions or by a comparison of normal value and export
prices on a transaction‑to‑transaction basis. A normal value established on
a weighted average basis may be compared to prices of individual export
transactions if the authorities find a pattern of export prices which differ
significantly among different purchasers, regions or time periods, and if an
explanation is provided as to why such differences cannot be taken into
account appropriately by the use of a weighted average‑to‑weighted average
or transaction-to-transaction comparison."

The legal issue presented by the claim of the European
Communities under Article 2.4.2 concerns the interpretation of the first of the
two methods set out in the first sentence of Article 2.4.2. In particular, the
question is whether establishing "the existence of margins of dumping during the
investigation phase...on the basis of a comparison of a weighted average normal
value with a weighted average of prices of all comparable export transactions"
means that, if multiple comparisons are made between export price and normal
value for individual models, all differences between weighted average export
prices and weighted average normal values resulting from such comparisons,
positive or negative, must be fully reflected in the computation of the overall
margin of dumping for the product in question.

7.27 We recall that in EC  Bed Linen and US 
Softwood Lumber V, which both involved original investigations, the
panels and the Appellate Body found that, if an authority divides a product into
different models, compares the weighted average of prices of all comparable
export transactions and weighted average normal value for each of those models
and aggregates the results of those model-by-model comparisons to arrive at a
margin of dumping for the product as a whole, it is inconsistent with Article
2.4.2 not to include in the numerator the results of comparisons where the
weighted average of prices of all comparable export transactions is above the
weighted average normal value.127

7.28 The information before us shows that in the anti-dumping
investigations at issue in this dispute128 USDOC calculated aggregate margins of
dumping in a manner that, with respect to the treatment of weighted-average
export prices that were above normal value, was identical in relevant respects
to the zeroing methodology considered by the panels and Appellate Body in EC
 Bed Linen and US  Softwood Lumber V.129

7.29 The Panel has carefully considered the arguments
advanced by the United States with respect to what the United States considers
to be flaws in the reasoning of the Appellate Body in US  Softwood Lumber V.
In this respect, we are mindful of our obligations under Article 11 of the DSU.
At the same time, we note that the issues raised by the United States regarding
the meaning of the term "margin of dumping" and the relevance of the historical
background of Article 2.4.2 of the AD Agreement were addressed by the
Appellate Body in US  Softwood Lumber V.

7.30 Although previous Appellate Body decisions are not
strictly speaking binding on panels, there clearly is an expectation that panels
will follow such decisions in subsequent cases raising issues that the Appellate
Body has expressly addressed. The Appellate Body has stated that adopted
Appellate Body reports should be taken into account where they are relevant to
any dispute.130 In US  Oil Country Tubular Goods Sunset Reviews, the
Appellate Body specifically stated that:

"... following the Appellate Body's conclusions in
earlier disputes is not only appropriate, but is what would be expected from
panels, especially where the issues are the same".131

We also note that Article 3.2 of the DSU refers to the DSU as
"a central element in providing security and predictability to the multilateral
trading system".

7.31 Therefore, we do not believe that it would be
appropriate for us to depart from the Appellate Body's conclusion that when a
margin of dumping is calculated on the basis of multiple averaging by model
type, the margin of dumping for the product in question must reflect the results
of all such comparisons, including weighted average export prices that are above
the normal value for individual models.

7.32 In light of the foregoing considerations, the Panel
finds that the United States has acted in breach of Article 2.4.2 of the
AD Agreement when in the anti-dumping investigations at issue132 USDOC did not
include in the numerator used to calculate weighted average dumping margins any
amounts by which average export prices in individual averaging groups exceeded
the average normal value for such groups.

4. Claim of the European Communities under Article 2.4 of
the AD Agreement

7.33 In light of its finding with respect to the claim of the
European Communities under Article 2.4.2 of the AD Agreement, the Panel
considers that it is not necessary to address the claim of the European
Communities that the application of the model zeroing method in these
investigations was also inconsistent with Article 2.4 of the AD Agreement.133

5. Claims of the European Communities under other
provisions of the AD Agreement, Articles VI:1 and VI:2 of the GATT
1994 and Article XVI:4 of the WTO Agreement.

7.34 The Panel also perceives no need to pronounce on the
dependent claims raised by the European Communities under Articles 1; 3.1, 3.2
and 3.5; 5.8; 9.3; and 18.4 of the AD Agreement, Articles VI:1 and VI:2
of the GATT 1994 and Article XVI: 4 of the WTO Agreement. Deciding such
dependent claims would provide no additional guidance as to the steps to be
undertaken by the United States in order to implement our recommendation
regarding the violation on which it is dependent.134

D.
CLAIMS OF THE EUROPEAN COMMUNITIES IN RESPECT OF "STANDARD ZEROING
PROCEDURES" AND CERTAIN PROVISIIONS OF THE TARIFF ACT IN RELATION TO
ORIGINAL INVESTIGATIONS

7.35 The European Communities claims that, with respect to
the use of a zeroing135 methodology in the calculation of margins of dumping in
original investigations, USDOC's "Standard Zeroing Procedures" and certain
provisions of the Tariff Act of 1930, as amended ("Tariff Act") are as such
inconsistent with Articles 2.4 and 2.4.2, 5.8, 9.3, 1 and 18.4 of the AD
Agreement, Articles VI:1 and VI:2 of the GATT 1994 and Article XVI:4 of the
WTO Agreement.

7.36 It is not in dispute that the provisions of the Tariff
Act, as such, can be challenged as measures. By contrast, the parties disagree
on whether what has been described for the purposes of this dispute by the
European Communities as "Standard Zeroing Procedures", as such, constitute
measures that can be challenged in WTO dispute settlement. Because it is
possible that a finding with respect to the merits of the claims of the European
Communities regarding the provisions of the Tariff Act may obviate the need to
address the issue of the status of the "Standard Zeroing Procedures", we examine
first the "as such" claims of the European Communities regarding the Tariff Act.

1. The "as such" claims of the European Communities with
respect to the Tariff Act

(a) Relevant provisions

7.37 The provisions of the Tariff Act challenged by the
European Communities are: (i) Sections 771(35)(A) and (B); (ii) Section 731; and
(iii) Section 777A(d).136

(A) Dumping margin. The term "dumping margin" means the
amount by which the normal value exceeds the export price or constructed
export price of the subject merchandise.

(B) Weighted average dumping margin. The term "weighted
average dumping margin" is the percentage determined by dividing the
aggregate dumping margins determined for a specific exporter or producer by
the aggregate export prices and constructed export prices of such exporter
or producer."

(1) The administering authority determines that a class
or kind of foreign merchandise is being, or is likely to be, sold in the
United States at less than its fair value; and

(2) The Commission determines that:

(A) An industry in the United States:

(i) is materially injured, or

(ii) is threatened with material injury, or

(B) the establishment of an industry in the United
States is materially retarded, by reason of imports of that merchandise
or by reason of sales (or the likelihood of sales) of that merchandise
for importation, then there shall be imposed upon such merchandise an
antidumping duty, in addition to any other duty imposed, in an amount
equal to the amount by which the normal value exceeds the export price
(or the constructed export price) for the merchandise. For purposes of
this subsection and Section 735(b)(1), a reference to the sale of
foreign merchandise includes the entering into of any leasing
arrangement regarding the merchandise that is equivalent to the age sale
of the merchandise."

(A) In general. In an investigation under subtitle B,
the administering authority shall determine whether the subject
merchandise is being sold in the United States at less than fair value

(i) by comparing the weighted average of the
normal values to the weighted average of the export prices (and
constructed export prices) for comparable merchandise, or

(ii) by comparing the normal values of
individual transactions to the export prices (or constructed
export prices) of individual transactions for comparable
merchandise.

(B) Exception. The administering authority may
determine whether the subject merchandise is being sold in the United
States at less than fair value by comparing the weighted average of the
normal values to the export prices (or constructed export prices) of
individual transactions for comparable merchandise, if

(i) there is a pattern of export prices (or
constructed export prices) for comparable merchandise that
differ significantly among purchasers, regions, or periods of
time, and

(ii) the administering authority explains why
such differences cannot be taken into account using a method
described in paragraph (1)(A)(i) or (ii).

(2) Reviews. In a review under Section 751, when
comparing export prices (or constructed export prices) of individual
transactions to the weighted average price of sales of the foreign like
product, the administering authority shall limit its averaging of prices
to a period not exceeding the calendar month that corresponds most
closely to the calendar month of the individual export sale."

(b) Arguments of the parties

7.41 The European Communities submits that Section
771(35)(A) of the Tariff Act is inconsistent with the requirement of Articles
2.4 and 2.4.2 of the AD Agreement that any difference between export
price and normal value be treated as a margin of dumping because (a) it
expressly provides only for the measurement of the amount by which the normal
value exceeds the export price, (b) it uses the word "amount", which requires or
at the very least strongly suggests a positive result and (c) it uses the
concept of "dumping margin" which is almost indistinguishable from the concept
of "margins of dumping" in Article 2.4.2 but which has a different meaning, thus
obfuscating the proper application of the AD Agreement.140

7.42 Regarding Section 771(35)(B) of the Tariff Act, the
European Communities asserts that this provision is inconsistent with Articles
2.4 and 2.4.2 of the AD Agreement because the use of the word "aggregate"
rather than "average" suggests something that is positive and because the use of
the plural "dumping margins" for an individual exporter is inconsistent with
Article 2.4.2 as dumping and margins of dumping can only be established in
relation to the subject product as a whole.141

7.43 The European Communities submits that Section 731 of the
Tariff Act, which provides for the imposition of an anti-dumping duty "in an
amount equal to the amount by which the normal value exceeds the export price"
is inconsistent as such with the AD Agreement because it is vitiated by
the same language as Section 771(35)(A) and (B).142

7.44 The European Communities submits that Section 777A of
the Tariff Act only provides for the possibility of determining that the subject
merchandise is sold at less than fair value, rather than providing for the
simple comparison required by Article 2.4 of the AD Agreement. Second,
instead of the words "all comparable" used in Article 2.4 of the AD Agreement,
it uses the word "comparable".143

7.45 The European Communities asserts that the relevant
standard with respect to "as such" claims is whether a measure is in conformity
with the AD Agreement, i.e. whether or not it is a sound implementation.
If a domestic law contributes forcefully to the adoption of a series of measures
that are inconsistent with the AD Agreement, this means that the root of
the problem lies at least in part with the relevant provision of that law. That
the provisions of the Tariff Act are at least in part the source of the
inconsistency is evident from the fact that USDOC has repeatedly asserted that
zeroing is required by these provisions.144

7.46 The European Communities considers that whether
legislation is mandatory or discretionary is only one of the questions to be
examined in determining its compatibility with WTO provisions. If a measure is
discretionary, its effects must also be taken into account. In determining
whether legislation is WTO-inconsistent as such, one must weigh and assess all
relevant factual evidence to determine whether it is possible to determine
whether the law, or more generally the document containing the general rule or
norm for prospective application is the root of the problem. Under this
approach, legislation that is open to interpretation and is in fact consistently
interpreted and applied by the investigating authority as permitting
WTO-inconsistent conduct could be found to be inconsistent as such.145

7.47 The United States submits that Sections
771(35)(A) and (B) and 777A(d) of the Tariff Act are not inconsistent as such
with the WTO provisions cited by the European Communities because they do not
prohibit USDOC from providing an offset for non-dumped transactions. The
European Communities cannot demonstrate that these provisions prohibit USDOC
from providing an offset for non-dumped transactions because the United States
Court of Appeals for the Federal Circuit has held twice that the Tariff Act,
including these provisions in particular, does not require the use of zeroing.146

7.48 The United States submits in this connection that a
measure is WTO-inconsistent as such if it mandates WTO-inconsistent action or
precludes WTO-consistent action.147 Numerous panel reports have applied this
mandatory/discretionary distinction and there has been no instance in which a
panel or the Appellate Body has found a measure WTO-inconsistent as such if the
measure was found to neither mandate WTO-inconsistent action nor preclude
WTO-consistent action. The United States rejects the argument of certain third
parties that recent Appellate Body decisions have called into question the
mandatory/discretionary test and refers in this respect to the panel report in
Korea  Commercial Vessels. The United States asserts that the European
Communities has not been able to cite any panel or Appellate Body report that
supports its approach to determining when legislation is WTO-inconsistent as
such.148

(c) Arguments of third parties

7.49 Third parties have not submitted arguments specifically
in respect of the particular provisions of the Tariff Act challenged by the
European Communities in this dispute.149150

(d) Evaluation by the Panel

7.50 It is well-established in GATT and WTO dispute
settlement practice that a Member may bring a complaint under the DSU with
respect to another Member's legislation as such151 i.e. "independently from the
application of that legislation in specific instances".152 Thus, legislation as
such can be a "measure" as that term is used in the DSU.153

7.51 The Appellate Body has on several occasions pronounced
on the burden of proof and relevant evidence to sustain an "as such" claim with
respect to legislation:

"... a responding Member's law will be treated as
WTO-consistent until proven otherwise. The party asserting that another
party's municipal law, as such, is inconsistent with relevant treaty
obligations bears the burden of introducing evidence as to the scope and
meaning of such law to substantiate that assertion. Such evidence will
typically be produced in the form of the text of the relevant legislation or
legal instruments, which may be supported, as appropriate, by evidence of
the consistent application of such laws, the pronouncements of domestic
courts on the meaning of such laws, the opinions of legal experts and the
writings of recognized scholars. The nature and extent of the evidence
required to satisfy the burden of proof will vary from case to case."154

7.52 The Appellate Body has also emphasized that:

"[w]hen a measure is challenged 'as such', the starting
point for an analysis must be the measure on its face. If the meaning and
content of the measure are clear on its face, then the consistency of the
measure as such can be assessed on that basis alone. If, however, the
meaning or content of the measure is not evident on its face, further
examination is required "155

7.53 WTO panels and the Appellate Body have applied the
principle, articulated by the Permanent Court of International Justice, that
municipal laws are facts before international tribunals.156 One aspect of this is
the need for an international tribunal to take account of decisions of domestic
courts on the meaning of municipal law.157

7.54 While there is no disagreement between the parties to
the present dispute that legislation can be challenged as such in WTO dispute
settlement, they have expressed divergent views on the substantive criterion for
determining whether legislation is WTO-inconsistent as such. In particular, they
disagree on the significance to be attached in this respect to whether
legislation is "mandatory" or "discretionary" with respect to the allegedly
WTO-inconsistent conduct in question.

7.55 We note that a considerable number of WTO panel reports
have applied the principle that domestic legislation is WTO-inconsistent as such
if it mandates WTO-inconsistent conduct but not if it merely provides the
executive branch with the discretion to act inconsistently with WTO obligations.158
Although the Appellate Body has in several cases found that legislation that
provided the executive with sufficient discretion to avoid acting inconsistently
with WTO-obligations was not WTO-inconsistent as such159, it has also made it clear
in US  Corrosion Resistant Steel Sunset Review that it has not
"pronounce[d] generally upon the continuing relevance or significance" of the
mandatory/discretionary distinction".160 The Appellate Body went on to observe
that:

"... Nor do we consider that this appeal calls for us to
undertake a comprehensive examination of this distinction. We do,
nevertheless, wish to observe that, as with any such analytical tool, the
import of the 'mandatory/discretionary distinction' may vary from case to
case. For this reason, we also wish to caution against the application of
this distinction in a mechanistic fashion."161

7.56 The parties and third parties have expressed sharply
divergent views with respect to the question of whether the
mandatory/discretionary distinction continues to be relevant.162 We consider,
however, that it is neither necessary nor appropriate for us to articulate a
comprehensive view on this question in the abstract. Instead, we will address
this issue only to the extent necessary in light of our analysis of the
provisions challenged by the European Communities in this proceeding.

7.57 In this regard, we recall that the issue before us is
the alleged WTO-inconsistency of certain provisions of the Tariff Act with
regard to the manner in which export prices that are above the normal value are
treated if an overall margin of dumping for a product is calculated based on the
results of average-to-average comparisons between export price and normal value
for individual averaging groups. As explained below, in our view, the text of
these provisions simply does not address this particular aspect of the
methodology for calculating a dumping margin.

7.58 We recall that the textual basis of the claim of the
European Communities with respect to Section 771(35)(A) and (B) is the use of
the word "amount", the phrase "amount by which the normal value exceeds the
export price or constructed export price...", the use of the concept of "dumping
margin", the use of the plural "dumping margins" in relation to individual
exporters and the use of the word "aggregate" rather than "average".

7.59 We consider that the word "amount" and the phrase "the
amount by which the normal value exceeds the export price or constructed export
price" in Section 771 (35)(A) reflect the fact that this provision addresses the
magnitude and not just the existence of dumping per se. In this regard,
we note that Article VI:2 of the GATT 1994, read together with Article VI:1,
defines the margin of dumping as "the price difference" when products of one
country are introduced into the commerce of another country at less than their
normal value. A product is introduced into the commerce of another country at
less than its normal value if its export price is less than the comparable price
for the like product in the domestic market of the exporting country or in the
absence of such a domestic price, is less than a comparable price at which the
product is exported to a third country or the constructed value of the product.
Thus, the concept of "margin of dumping" in GATT Article VI is defined in terms
of a price difference in a situation in which a product is introduced
into the commerce of another country at less than its normal value i.e. when the
export price of the product is less than the normal value of the product.
We fail to see how the word "amount" and the phrase "the amount by which the
normal value exceeds the export price or constructed export price..." are
qualitatively different from, and less neutral, than the notion of a price
difference that exists when the export price is less than the normal value. We
consider that it is not possible to draw any conclusion from the use of
terminology that can be seen as simply paraphrasing the language of Article VI
of the GATT 1994 as to the approach envisioned with respect to the specific
issue of whether or not export prices above normal value will be taken into
account when an average dumping margin is calculated on the basis of multiple
comparisons.

7.60 Regarding the term "dumping margin(s)" in Section
771(35)(A) and (B), we note that the use of the plural "dumping margins"
logically implies that there can be more than one "dumping margin" for a
specific exporter or producer, which is in contradiction with the interpretation
of "margins of dumping" by the Appellate Body. The term "dumping margin" as used
in Section 771(35)(A) and (B) would appear to refer to what the Appellate Body
has termed "intermediate calculations" and "intermediate values".163 At the same
time, a finding on whether legislation is WTO-inconsistent as such should be
based on the substantive content of the legislation rather than on its
terminology. The issue before us is not whether Section 771(35) uses terminology
that is different from the terminology of relevant WTO provisions but whether it
provides for a methodology that is substantively inconsistent with the
requirements of the AD Agreement regarding the calculation of "margins of
dumping". Since the use of "dumping margin" and the plural "dumping margins" do
not indicate whether in the aggregation phase account will be taken of average
export prices that are above the average normal values for particular averaging
groups, we consider the difference in terminology between these provisions and
the relevant WTO provisions to be of no relevance to the issue before us.

7.61 The use of the word "aggregate" in Section 771(35)(B) in
our view reflects a necessary feature of a method that calculates a margin of
dumping on the basis of multiple comparisons between export price and normal
value because the results of those comparisons must be "combined". We note in
this regard that the Appellate Body has used the same term "aggregate" in
referring to the process of combining the results of multiple comparisons.164 The
word "aggregate" in and of itself does not indicate whether in the process of
combining results of multiple comparisons results of comparisons in averaging
groups in which the average export price is higher than the normal value will be
included in the numerator of the average dumping margin.165

7.62 Thus, our analysis of the specific textual arguments of
the European Communities in support of its claim that certain provisions of the
Tariff Act are as such WTO-inconsistent with regard to the use of model zeroing
in original investigations leads to the conclusion that those provisions do not
speak to that issue.

7.63 In any event, even if we had come to a different
understanding of the meaning of these provisions of the Tariff Act, we note that
while USDOC has interpreted Section 771(35)(A) and (B) of the Tariff Act as
precluding it from taking into account "negative dumping margins"166, the United
States Court of Appeals for the Federal Circuit has recently rejected the view
that these provisions in and of themselves require USDOC to disregard negative
dumping margins. Thus, in Timken Co. v. United States, the Court held
that the word "exceeds" "could arguably allow for negative dumping margins" and
that, as a consequence, the definition of "dumping margin" as "the amount by
which the normal value exceeds the export price" " ...does not unambiguously
require that dumping margins be positive numbers". In fact, the Court further
explained that "the statute does not directly speak to the issue of
negative-value dumping margins".167 In light of this finding, the Court examined
whether USDOC's interpretation was "based on a permissible statutory
construction". The Court held that USDOC "reasonably interpreted §1677(35)(A) to
allow for zeroing" and that "Commerce based its zeroing practice on a reasonable
interpretation of the statute".168 Moreover, most recently, in Corus Staal BV v.
United States, the Court observed that "Section 1677(35) presented Commerce
with a choice as to how it calculates weighted-average dumping margins".169
We conclude therefore that the Court has established that the Tariff Act does
not require, albeit that it does not preclude, USDOC from zeroing.

7.64 The meaning of municipal law in a WTO dispute settlement
proceeding is a fact to be established by relevant evidence. Although relevant
evidence of the meaning of a law may take various forms, including evidence of
the consistent application of the law170 we must accord greater weight to the
interpretation of the meaning of domestic law by the competent domestic tribunal
than to the interpretation by the agency administering that law. We note in this
respect the statement of the United States that "the Federal Circuit has the
final say as to what the U.S. antidumping statute means".171

7.65 We recall that the Court found that the provisions of
the Tariff Act at issue "do not directly speak to the issue" of (model) zeroing,
that the law "presents Commerce with a choice" and that "Commerce reasonably
interpreted" the statute "to allow for zeroing". Therefore, we conclude from our
own analysis of the text of the provisions of the Tariff Act challenged by the
European Communities and from the decisions of the United States Court of
Appeals for the Federal Circuit that these provisions do not specifically
address the issue of zeroing.

7.66 It is clear to us that under the
"mandatory/discretionary" approach as applied in many GATT and WTO panel
reports, the provisions of the Tariff Act challenged by the European Communities
cannot be found to be WTO-inconsistent as such since they cannot be considered
to be "mandatory" within the meaning of that distinction. We also note, however,
that while the Appellate Body has not rejected the validity of the
mandatory/discretionary distinction as an "analytical tool", it has also
indicated that it had not yet pronounced on the continuing relevance or
significance of this distinction and has cautioned against its mechanistic
application.172

7.67 In that connection, we have found in the present case
that the provisions of law that are being challenged as WTO-inconsistent as such
do not specifically address the issue in respect of which it is claimed that
they are WTO-inconsistent. If we had found that the relevant provisions of the
Tariff Act, while not requiring the use of a zeroing methodology, at least
specifically addressed that, it might perhaps have been necessary to reach the
question whether recent Appellate Body decisions173 should perhaps be understood to
mean that a provision of a law can be WTO-inconsistent if it envisions
WTO-inconsistent conduct without necessarily requiring such conduct.
However, while we are cognizant of the need for caution with respect to the
application of what after all is nothing more than an "analytical tool", we
cannot see any support in GATT and WTO dispute settlement practice, including
recent Appellate Body decisions, for the proposition that a law can be found to
be WTO-inconsistent as such with respect to an issue that it does not
specifically address. In our view, the very notion of a law as being
WTO-inconsistent necessarily entails that the law must address that issue with a
certain degree of specificity. In this case such specificity does not exist.
While the law at issue envisions the calculation of dumping margins, the
relevant United States court has made clear that as the provisions of the law
"do not directly speak to the issue", USDOC retains the freedom in making those
calculations as to whether to zero or not.

7.68 We note, in this respect, the argument of the European
Communities that an "as such" finding should be possible where it can be
determined that a provision of a law contributes forcefully to the adoption of a
series of WTO-inconsistent measures and is thereby "the root of the problem" and
the "source" of the inconsistency.174 While we are not entirely sure what the
European Communities means by this, if it means that a law can be found to be
WTO-inconsistent as such even where it does not address the issue, we reject
that position.175

7.69 The Panel therefore finds that Sections
771(35)(A) and (B), 731 and 777A(d) of the Tariff Act are not as such
inconsistent with Articles 2.4, 2.4.2, 5.8, 9.3, 1 and 18.4 of the AD
Agreement, Articles VI:1 and VI:2 of the GATT 1994 and Article XVI:4 of the
WTO Agreement with respect to the use of a zeroing methodology in the
calculation of margins of dumping in original investigations.

84 The European Communities' arguments with respect to the
alleged consequential violations of Articles 1, 5.8, 9.3 and 18.4 of the AD
Agreement, and Articles VI:1 and VI:2 of GATT 1994; and Article XVI:4 of the
WTO Agreement are summarised above at paras. 4.121, 4.126-4.130.

85 The European Communities' arguments with respect to the
alleged consequential violations of Articles 1, 9.3, 11.1, 11.2 and 18.4 of the
AD Agreement, and Articles VI:1 and VI:2 of GATT 1994; and Article XVI:4
of the WTO Agreement are summarised above at paras. 4.122, 4.126-4.130.

86 The European Communities' arguments with respect to the
alleged consequential violations of Articles 1, 9.3, 9.5, 11.1, 11.2, and 18.4
of the AD Agreement; Articles VI:1 and VI:2 of GATT 1994; and Article
XVI:4 of the WTO Agreement are summarised above at paras. 4.122, 4.126-4.130.

92 The European Communities' arguments with respect to the
alleged consequential violations of Articles 1, 9.3, 11.1, 11.2 and 18.4 of the
AD Agreement, and Articles VI:1 and VI:2 of GATT 1994; and Article XVI:4
of the WTO Agreement are summarised above at paras. 4.122, 4.126-4.130.

93 The European Communities' arguments with respect to the
alleged consequential violations of Articles 1, 9.3, 9.5, 11.1, 11.2 and 18.4 of
the AD Agreement; Articles VI:1 and VI:2 of GATT 1994; and Article XVI:4
of the WTO Agreement are summarised above at paras. 4.122, 4.126-4.130.

109 It is not entirely clear whether this request pertains only
to the "as applied" claims of the European Communities under Article 2.4 or to
both the "as applied" and "as such" claims. In any event, our analysis applies
to both.

111 For example, paragraph 63 of the First Submission of the
European Communities states that the "measures at issue in the sample 'as
applied' case include the Final Determination and any amendments to the Final
Determination. The Final Determination refers to the Issues and Decision
Memorandum, which in turn refers to the 'Margin Calculations', that is the
Calculation Memoranda and the Final Margin Program Log and Outputs for all the
firms investigated". (footnotes omitted)

112 The request for the establishment of a panel
(WT/DS294/7/Rev.1, paragraph 3.2) mentions "determinations of dumping by DOC,
the determinations of injury by the United States International Trade
Commission, the imposition of definitive duties in the original investigations
and the outcome of the administrative review investigations as detailed in the
annexes". The same paragraph refers to paragraph 3.1, which describes a number
of violations of WTO obligations by the United States with respect to the manner
in which the United States "calculates a margin and amount of dumping" and
"calculates a margin of dumping and collects an amount of anti-dumping duty".

114 Article 11 of the DSU provides: The function of panels is to
assist the DSB in discharging its responsibilities under this Understanding and
the covered agreements. Accordingly, a panel should make an objective assessment
of the matter before it, including an objective assessment of the facts of the
case and the applicability of and conformity with the relevant covered
agreements, and make such other findings as will assist the DSB in making the
recommendations or in giving the rulings provided for in the covered agreements.

118 The European Communities uses the term "original
investigations" to refer to investigations within the meaning of Article 5 of
the AD Agreement as distinguished from what it considers to be "other
types of investigations" such as duty assessment proceedings under Article 9.3
and reviews under Article 11 of the AD Agreement. In light of the fact
that the meaning of the term "investigations" is the subject of dispute between
the parties, we have for the sake of clarity used the term "original
investigations". The use of this phrase in this Report is without prejudice to
our view on the legal status of that term under the AD Agreement.

119 Notice of Final Determination of Sales at Less Than Fair
Value: Stainless Steel Bar From Italy, 67 Fed. Reg. 3155 (23 January 2002);
Notice of Final Determination of Sales at Less Than Fair Value: Stainless
Steel Bar From France, 67 Fed. Reg. 3143 (23 January 2002); Notice of
Final Determination of Sales at Less Than Fair Value: Stainless Steel Bar from
Germany, 67 Fed. Reg. 3159 (23 January 2002); Notice of Final
Determination of Sales at Less Than Fair Value: Stainless Steel Bar From the
United Kingdom, 67 Fed. Reg. 3146 (23 January 2002); Notice of Final
Determination of Sales at Less Than Fair Value; Certain Hot-Rolled Carbon Steel
Flat Products From The Netherlands, 66 Fed. Reg. 50408 (3 October 2001);
Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel
Wire Rod From Sweden, 63 Fed. Reg. 40449 (29 July 1998); Notice of
Final Determination of Sales at Less Than Fair Value: Stainless Steel
Wire Rod From Italy, 63 Fed. Reg. 40422 (29 July 1998); Notice of Final
Determination of Sales at Less Than Fair Value: Stainless Steel Plate in Coils
From Belgium, 64 Fed. Reg.15476 (31 March 1999); Notice of Final
Determination of Sales at Less Than Fair Value: Stainless Steel Sheet and Strip
in Coils From France, 64 Fed. Reg. 30820 (8 June 1999); Notice of Final
Determination of Sales at Less Than Fair Value: Stainless Steel Sheet and Strip
in Coils From Italy, 64 Fed. Reg. 30750 (8 June 1999); Notice of Final
Determination of Sales at Less Than Fair Value; Stainless Steel Sheet and Strip
in Coils From The United Kingdom, 64 Fed. Reg. 30688 (8 June 1999);
Notice of Final Determination of Sales At Less Than Fair Value: Certain
Cut-To-Length Carbon-Quality Steel Plate Products From France, 64 Fed. Reg.
73143 (29 December 1999); Notice of Final Determination of Sales At Less Than
Fair Value: Certain Cut-To-Length Carbon-Quality Steel Plate Products From Italy,
64 Fed. Reg. 73234 (29 December 1999); Notice of Final Determination of Sales
At Less Than Fair Value: Certain Cut-To-Length Carbon-Quality Steel Plate
Products From Italy, 64 Fed. Reg. 73234 (29 December 1999); Notice of
Final Determination of Sales at Less Than Fair Value: Certain Pasta From Italy,
61 Fed. Reg. 30326 (14 June 1996); Notice of Final Determination of Sales at
Less Than Fair Value: Stainless Steel Wire Rod From Spain, 63 Fed. Reg.
40391 (29 July 1998). The European Communities treats Stainless Steel Bar
From Italy as a sample case and indicates that the measures at issue in this
sample case include the Final Determination of Sales at Less than Fair Value
and any amendments thereto. The Final Determination refers to
the Issues and Decision Memorandum, which in turn refers to the Margin
Calculations, i.e. the Calculation Memoranda and the Final Margin Program Log
and Outputs for all the firms investigated. The measures at issue also include
the anti-dumping duty order and any amendments, including the assessment
instructions, and the USITC injury determination. EC-First Written
Submission, para. 63.

120See supra, para. 2.3for an explanation of the
concept of "averaging groups".

126 The Appellate Body has affirmed in US  Softwood Lumber V
that "multiple averaging" is permitted under Article 2.4.2 to establish the
existence of margins of dumping for the product under investigation. Appellate
Body Report, US  Softwood Lumber V, para. 81.

127 Appellate Body Report, EC  Bed Linen, paras. 46-66;
Appellate Body Report, US  Softwood Lumber V, paras. 76-117. In US 
Softwood Lumber V, the Appellate Body emphasized that its analysis was
limited to the use of zeroing in the context of the
weighted-average-to-weighted-average comparison methodology provided for in the
first sentence of Article 2.4.2. Appellate Body Report, US  Softwood
Lumber V, paras. 63, 104-105 and 108.

133 We note that the panels in EC  Tube or Pipe Fittings
and in US  Softwood Lumber V likewise declined to make a finding on
whether zeroing is inconsistent with the "fair comparison" language of Article
2.4 once they had found this zeroing method to be inconsistent with Article
2.4.2 of the AD Agreement. Panel Report, EC  Tube or Pipe Fittings,
para. 7.219; Panel Report, US  Softwood Lumber V, para. 7.226.

135 It is our understanding, particularly in light of the
discussion in paragraphs 146-147 of the EC-First Written Submission of "other
averaging groups", that the European Communities challenges the provisions of
the Tariff Act and the "Standard Zeroing Procedures" with respect to both model
zeroing i.e. zeroing when multiple comparisons are made using averaging groups
based on physical characteristics and zeroing involving the use of averaging
groups established on the basis of other criteria.

136 Although the first written submission of the European
Communities includes the Statement of Administrative Action ("SAA") among the
measures at issue, it is our understanding that the European Communities does
not request us to make a separate finding on the SAA as a measure which is as
such WTO-inconsistent. EC-Response to Panel Question 50; EC-Rebuttal Submission,
para. 68.

137 Section 771 ("Definitions; Special Rules") is the first
provision in Subtitle D ("General Provisions") in Title VII of the Tariff Act
("Countervailing and Antidumping Duties").

138 Section 731 is the first provision in Subtitle B ("Imposition
of Antidumping Duties") in Title VII of the Tariff Act.

139 Section 777A ("Sampling and averaging; determination of
weighted average dumping margin and countervailable subsidy rate") is contained
in Subtitle D ("General Provisions") of Title VII of the Tariff Act.

143 EC-First Written Submission, para. 145. The European
Communities also argues that the juxtaposition between investigations and
reviews indicates that the requirement contained in Section 777A(d)(1) of a
symmetrical comparison method may be abandoned during reviews, including
periodic reviews of the amount of the duty, and that this is inconsistent with
Article 9.3 of the AD Agreement, which requires that the amount of the
anti-dumping duty shall not exceed the margin of dumping as established under
Article 2. We consider that this argument concerning the alleged non-application
to administrative reviews of the requirement of a symmetrical comparison
method in Section 777A(d)(1) logically cannot be a basis for a finding that this
provision is WTO-inconsistent as such in relation to investigations.

149 While Mexico argues that the United States' legal rules on
anti-dumping, specifically sections 771(35)(A) and (B) and Section 777A(d) of
the Tariff Act are inconsistent as such with Articles 2.4, 2.4.2, 9.3, 11 and
18.4 of the AD Agreement, Article VI:1 and VI:2 of the GATT 1994 and
Article XVI:4 of the WTO Agreement, Mexico has not elaborated this argument
through a textual analysis of the provisions in question.

150We note that in connection with the issue of whether
"Standard Zeroing Procedures" are measures that can be challenged as such, some
third parties have presented arguments that are also relevant to the question of
how to determine whether legislation is WTO-inconsistent as such, notably
regarding the mandatory/discretionary distinction.

160Appellate Body Report, US  Corrosion-Resistant Steel
Sunset Review, para. 93. A footnote to this sentence explains that: "In our
Report in US  1916 Act, we examined the challenged legislation and found
that the alleged 'discretionary' elements of that legislation were not of a type
that, even under the mandatory/discretionary distinction, would have led
to the measure being classified as 'discretionary' and therefore consistent with
the AD Agreement. In other words, we assumed that the distinction
could be applied because it did not, in any event, affect the outcome of our
analysis. We specifically indicated that it was not necessary, in that appeal,
for us to answer 'the question of the continuing relevance of the distinction
between mandatory and discretionary legislation for claims brought under the AD
Agreement'. (Appellate Body Report, US  1916 Act, para. 99)
We also expressly declined to answer this question in footnote 334 to para. 159
of our Report in US  Countervailing Measures on Certain EC Products.
Furthermore, the appeal in US  Section 211 Appropriations Act presented
a unique set of circumstances. In that case, in defending the measure challenged
by the European Communities, the United States unsuccessfully argued that
discretionary regulations, issued under a separate law, cured the discriminatory
aspects of the measure at issue." Appellate Body Report, US 
Corrosion-Resistant Steel Sunset Review, para. 93, footnote 94 (emphasis
original).

162 We also note that this matter has been discussed in recent
panel reports. At least two recent panel reports have relied on the
mandatory/discretionary distinction in analyzing whether legislation is
WTO-inconsistent as such. Panel Report, US  Upland Cotton, paras.
7.333-7.336, 7.748 and 7.1092 and Panel Report, Korea - Commercial Vessels,
paras. 7.60-7.67. The latter panel report explicitly rejected the argument of
the European Communities that in US  Corrosion-Resistant Steel Sunset Review
the Appellate Body had ruled against the application of the traditional
mandatory/discretionary distinction.

165 The argument of the European Communities with respect to
Section 731 of the Tariff Act is based on the use of the phrase "the amount by
which the normal value exceeds the export price...". We have already analyzed
this language above in connection with Section 771(35) (A) and (B). That
analysis also applies to the issue raised by the European Communities in respect
of the reference in Section 777A(d) to merchandise "being sold in the United
States at less than fair value". Finally, we note the argument of the European
Communities related to the fact that Section 777A(d) uses the word "comparable"
rather than "all comparable". We see nothing in the text or context of Section
777A(d) to warrant the conclusion that this provision envisages or permits a
comparison between a weighted average normal value and a weighted average export
price that does not reflect all export transactions. As noted above, a finding
that a domestic law is WTO-inconsistent as such cannot be based upon a mere
difference in terminology between that law and the relevant WTO provision. We
note that it is not contested in this dispute that when USDOC computes an
average dumping margin based on multiple comparisons, it includes the values of
all export transactions in the denominator of that dumping margin.

166 E.g., the Issues and Decision Memo for the Antidumping
Duty Investigation of Stainless Steel Bar from Italy; Final Determination ,
23 January 2002, p. 4.

175 With respect to the argument of the European Communities that
the relevant criterion to apply in case of an "as such" claim is whether a
measure is "in conformity" with WTO obligations, we note that the Panel in US
 1916 Act (Japan) expressed the view that because of the "in conformity"
language of Article 18.4 of the AD Agreement, the notion of
mandatory/discretionary legislation was no longer relevant. However, the
Appellate Body in that case specifically stated that it did not find it
necessary to consider whether Article 18.4 had supplanted or modified the
distinction between mandatory and discretionary legislation and that the Panel
did not need to opine on this issue. With respect to the reasoning of the Panel
in US - 1916 Act (Japan), we note thata provision identical to
Article 18.4 already existed in various Tokyo Round Agreements. No other WTO
panel has adopted the view that the mandatory/discretionary distinction has lost
its relevance because of Article 18.4 of the AD Agreement (or Article
32.5 of the SCM Agreement).